Weekly Energy Market Update - 13/01/2020

Last Week’s Pricing & Commentary

At the start of last week, markets began by pushing higher following the US airstrike on Baghdad airport which killed Iranian Major-General Qassem Soleimani. Feb 20 NBP and Mar 20 Brent contracts jumped 1.33p/therm and $0.88/barrel at the open as US/ Iran tensions remained fresh in the markets mind. Despite the jump from settlement to Mondays open, gas and power prices lacked support and quickly fell across the energy complex. Milder temperatures and strong wind generation continued, keeping storage at near full which did little to help keep prices higher. Additionally, analysts began to comment that they felt all out war between the US and Iran seemed unlikely which helped pricing to drop. Feb, Summer and Winter 20 gas contracts eventually lost 3.22p/therm, 2.65p/therm and 1.2p/therm on the day to mostly erase the gains made on the previous Friday. Power moved with gas as Feb, Summer and Winter 20 lost £1.61/MWh, £0.94/MWh and £0.90/MWh. Oil moved $0.44/barrel lower as easing tensions helped but nervousness remained to limit price drops compared to gas and power. EUAs lost €0.96/tonne, bringing prices back down to the €24 levels. 

Prices continued to soften into mid-week before further US/ Iran news broke early Wednesday morning that Iran had carried out a missile strike on a US air base in Iraq in retaliation for the US killing Major-General Qassem Soleimani. Oil opened $2.95/barrel higher than settlement amid the news as tensions spiked. Trump quickly tweeted that there were believed to be no casualties and little damage was caused which seemed to calm prices as oil sold $5.78/barrel from the open. Gas, power and carbon price movements weren’t as closely linked to this geopolitical news, likely due to the news and quick de-escalation happening in the early hours of the morning before the other markets had began trading materially. 

Gas moved mostly sideways through to the end of the week, following the big move down on Monday. The commodity did find slight support from a short system as wind generation lowered and increased gas burn generation was required as a result. Gas Feb 20 lost 3.95p/therm by the end of the week as the commodity lost value along the curve as bearish fundamentals dominated the discussion again. Power moved in line with gas, although slightly more muted, with the price decreases along the curve tapering off towards the back end. Oil had a volatile week driven by geopolitical news and ended the week $4.37 lower. EUAs reacted to US/ Iran news but to a less extent in a week that saw auctions restart. Dec 20 posted a loss of €0.98 for the week. 

This Morning’s View

Gas has opened strongly this morning with Feb and Summer 20 up 0.70 p/therm and 0.41 p/therm currently. The system opened 13.8mscm short but high wind generation is helping to limit demand for gas burn generation. Wind output is expected to climb over the day and into tomorrow, which could see day-ahead power and gas contracts come under pressure. System shortness this morning could see shippers draw further on UK storage; however longer-term supply still looks relatively plentiful with up to 10 LNG cargoes expected by the end of the month. Oil and carbon are mostly sideways with Mar 20 Brent up $0.17 and Dec 20 EUA down €0.12 from settlement, however with increased auction volumes this week, some analysts are more bearish on carbon. Sensitivity to sudden geopolitical news or events is expected to remain high.

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