Weekly Energy Market Update - 15/06/2020

Last Week’s Pricing & Commentary

Last week saw near curve gas break away from the rest of complex posting gains where elsewhere, bears were firmly in the driving seat. The Jul 20 NBP pushed 1.02p/therm higher on the week helped by short covering, expectations of stronger demand on lockdown measure easing as well as a stronger prompt. Prompt pricing was supported by lower renewable output, continued export demand from the continent and expectations of LNG cancellations due to narrowing, and now negative, Atlantic spread. Seasonal contract took direction from the rest of the complex with Winter 20 and Summer 21 NBP dropping 1.18p/therm and 1.35p/therm from the week’s open to Friday’s settlement. Power contracts moved somewhat similarly with the front holding up better than seasonal contracts as Jul 20, Winter 20 and Summer 21 baseload posted losses of £0.25/MWh, £1.16/MWh and £1.01/MWh respectively.

Power pricing was pressured on the week by sliding EUAs with the Dec 20 contract giving up the €23/tonne level early in Monday’s session and just about holding the €22/tonne level to close the week down €1.30/tonne on slipping Brent pricing and worsening macro sentiment. Crude oil pricing tumbled last week with Aug 20 Brent dropping $3.72/barrel from the week’s open. Sellers were brought to the fore by concerns around new cases of the coronavirus ticking up, slow recovery in fuel and refined product demand as well as a bull run in equities losing some steam. There may be some hope in the market that the continuation of OPEC+ supply cuts could help with balancing as several non-compliant nations confirm their commitment to the curbs, however with EIA data last week showing record high US crude inventories and lacklustre fuel demand, the hopes of a V-shaped recovery may have been optimistic at best.

Last Week’s Average Generation Stack

This Morning’s View

This morning has so far seen near curve gas continue to climb while the back end softens a little with Jul 20 NBP up 0.10p/therm and Winter 20 NBP down almost 0.40p/therm. This strength may be due to an undersupplied NTS as power station demand sits at 70 mcm, 10 mcm above LDZ offtake, on low renewable output with wind barely expected to climb above 1GW today. Storage stocks are still comfortably above last year’s levels, which could help to lessen some of the volatility and rises from expected LNG cancellations. Also interesting for UK power is the news that National Grid are extending the Sizewell B supply cuts until 10th August, likely to allow for better foot-room management day to day in the low demand environment. Elsewhere the complex remains bearish with Dec 20 EUAs down some €0.30/tonne from settlement, likely following Brent pricing. Aug 20 Brent is currently just over $1/barrel below settlement as the weekend’s reporting of coronavirus cases reveals increases in new cases across the US as well as in Beijing, China where demand for oil and industrial output had been ticking up.
 

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