Last week saw the UK power and gas markets strengthen to levels last seen in early May. The prompt end of the market saw the highest increases but there was a certainly an effect felt across much of the curve. The Winter-19 NBP contract opened the week at 48.5 p/therm and closed at 57 p/therm representing a rise of almost 20% over the week. Power followed the gas market with the UK Winter-19 Baseload contract posting around a £5/MWh gain on the week.
Most of these rises were felt through the end of the week where both power and gas markets followed the rest of the energy complex. Carbon broke into 11-year highs, breaching 28 EUR/tonne on the news that Germany has vowed to cancel EUAs. Oil rose due to continued tensions in the Middle East, Gulf Coast rig closures due to storm warnings, and a US stockpile drawdown that culminated in the Brent Crude Sep-19 contract being pushed up 2 USD/barrel on Wednesday alone.
On Friday morning, many in the market were discussing bearish indicators such as the UK NTS opening long with UKCS supply coming back online, wind generation load factors increasing after a week of low output, and carbon looking overbought. However, the Winter-19 NBP contract traded up almost another 3 pence in the afternoon with much of the system length reported in the morning being erased by 4pm. However, the move up was more muted down the curve pointing to little concern in the longer-term fundamentals.
This morning, the front two months of UK gas NBP have risen by close to 1.5 p/therm already from settlement whilst in the carbon markets, the Dec-19 contract has traded up around 0.30 EUR/tonne to over €29.00. The UK gas system has opened short with forecasted demand still well above seasonal norms, while wind continues to post a lacklustre performance in the generation stack, both of which may provide support to gas and power pricing.
Looking forward, we don’t see much change in the fundamental picture for UK power and gas as gas storage levels remain high, supply is still relatively plentiful and although Nyhamna will remain shut until the end of August, this won’t still be providing significant upwards pressure to later dated contracts. Much of the buying in UK power and gas appears to be on the back of momentum in other energy markets combined with long term short positions stopping out.
As we go into this week, the outlook remains unclear. Across European energy markets we have seen a significant reversal out of the down trend and volatility is high across markets. Whilst it remains difficult to attribute the move to fundamentals, the market is now building upside momentum and it is easy to envisage a scenario where carbon tests €30.00 later this week.
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