Weekly Energy Market Update - 11/10/2021

Last Week’s Pricing & Commentary  

Last week saw front month UK gas trade a ridiculous 199p/therm range with the start of the week bringing gains with bullish momentum continuing as Gazprom’s ability and willingness to meet European demand remained in question and mid-term temperature forecasts were revised colder. Wednesday saw the peak of the rally with the front-month pushing above 400p/therm. However, this level was ultimately rejected as profit targets were met and selling ensued. This selling pressure continued to build over the afternoon as the contract fell through support levels and Putin made an announcement that Russia was ready to step in and increase supply to Europe to ‘steady the market’. The contract managed to post a within-day loss of 20.46p/therm and trade a range of 152p/therm. Thursday and Friday saw several rallies off support levels that ultimately failed, feeling like the underlying wish of the market was to move lower to levels more in line with fundamentals. However, these rallies also show a willingness to step into the market, hinting that if forecasts turn colder or a shock to supply occurs, we could be pointing upwards again. Front-month NBP settled c. 19p/therm lower on the week, as did Summer 22 and Winter 22.

Power markets tracked movements in gas trading down on the week but were subject to similar volatility with the front-month trading above £300/MWh on Wednesday before the gas sell-off began. Front-month, Summer 22, and Winter 22 dropped £14.45/MWh, £16.18/MWh, and £15.41/MWh week on week. Near-term power remained strong with traders' pricing in significant risk premiums as the balance of October remained offered close to £350/MWh at the end of the week amidst low liquidity. Prompt power was well supported by periods of low wind and even when the wind was plentiful, high spark spreads saw day-ahead auctions clear high with the working week averaging close to £212/MWh. Carbon markets were again interesting last week with the decoupling between EUAs and UKAs continuing further. Dec 21 EUAs dropped €3.71/tonne of value on the week, with the heaviest selling coming on Wednesday with some participants pointing to selling of spot EUAs to generate cash to aid with funding positions amidst exchange margin rate hikes. UKAs saw a weak auction on Wednesday only partially clear as the government looked to have exercised their option to not fill bids too far below futures pricing. The Dec 21 UKA contract dropped £11.50/tonne on the week, bringing the UKA/EUA spread back in. Brent markets gained on the week with Dec 21 trading up $3.11/barrel despite late weakness due to surprise builds in US crude and gasoline stockpiles.

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen gas markets open strong with front-month up over 15p/therm as traders step into the contract. The NTS is forecast 16.7mcm long with demand below seasonal norms even with power station demand close to 80mcm. Dec 21 EUAs are up €1.75/tonne in line with bullish gas and Dec 21 Brent is up $1.47/barrel helped up by wider complex bullishness and a fire at a Libyan fuel storage tank.
 

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