Weekly Energy Market Update - 11/11/2019

Last week saw UK gas and power futures soften over the course of the week despite the colder temperatures. Front month gas traded up almost 1 p/therm from Monday’s open to Tuesday’s settlement in anticipation for the first set of frosty days this winter. However, when these colder temperatures came to fruition and national demand was up at over 270 mcm on Wednesday, the system opened oversupplied and looked comfortable for much of the week. This saw colder weather premiums stripped out and the front month contract ended up losing 1.56 p/therm over the week. This softening was not mirrored on the prompt, which rallied to the highest levels since July in reaction to the colder weather. Further down the curve, seasonal contracts traded down with Summer-20 and Winter-20 losing 0.81 p/therm and 0.65 p/therm respectively. UK power contracts suffered losses over the week in line with weaker gas as Dec-19, Summer-20 and Winter-20 lost £1.48/MWh, £1.44/MWh and £1.13/MWh respectively. Power futures would have also been helped lower by softening carbon.

Dec-19 EUAs lost €0.49/tonne over the week, feeling most of these losses on Wednesday due to weak fuels and several technical support levels failing amidst weak European manufacturing numbers. Brent Crude reversed the week’s energy complex trend and posted gains over the week. Jan-20 Crude spent the week range bound trying several times to break to both the upside and the downside. These swinging prices are a reflection to changing sentiment on fundamentals throughout the week as news came of a possible US-China preliminary trade deal that promised to rollback tariffs, however this bullish sentiment was quickly quelled by reports of US officials being severely opposed to the deal and Trump declaring he had not agreed to roll back tariffs. Weakness was propagated further by OPEC members stating they did not necessarily support greater production cuts and US crude inventories rising further. However, late on Friday’s session pricing lifted from lows of $60.66/barrel to settle $1.85/barrel higher, which some are linking to comments from Trump saying trade talks were moving along ‘very nicely’ and traders not wanting to go into the weekend with significant short positions given the swings seen during the week.

This morning has seen front month gas strengthen, currently trading 0.66 p/therm above settlement. This is despite the NTS opening c. 35 mcm oversupplied amidst strong Langeled and LNG terminal flows sitting at 73.5 mcm and 91 mcm respectively. Demand has fallen off from late last week largely due to stronger wind output, currently just over 11 GW, lowering gas-for-power demands. This oversupply and high wind output should pressure both prompt gas and power lower, especially given that wind is expected to remain strong throughout the day. However, National Grid is forecasting demand to rise significantly over the week, which could support prompt and near-curve pricing. It will be interesting to see how supply rises to match this elevated demand given the expectation placed on LNG to balance the grid in the coming weeks. Dec 19 EUAs have raced upwards this morning, currently trading €0.48/tonne above settlement, which may be pressuring gas higher. Jan-20 Brent is currently trading $0.42/barrel below settlement erasing some of Friday’s late gains to put the contract back just above $62/barrel.
 

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