Weekly Energy Market Update - 15/11/2021

Last Week’s Pricing & Commentary  

Last week saw mixed performance across the energy complex. Gas markets were initially stronger with Monday as the expected pick-up in Russian gas flow to Europe proved underwhelming and front-month pushed back above 200p/therm. However, Tuesday saw nominations grow at the Polish-German border and Gazprom make a public statement that the volumes and route of gas flow had been decided, which saw the market begin to give back the prior day’s gains. Wednesday saw the low of the week for the front-month contract at 165.90p/therm before bulls took control once again and the rest of the week was spent driving higher. Support was found late in the week from Belarusian threats to halt the flow of gas through Belarus if Poland did not open its borders to the growing number of migrants attempting to cross into the EU. Further bullish sentiment came from US reports that Russia was building a significant armed forces presence at the border with Ukraine with an increased threat of invasion. These bullish factors were enough to push front month to a 2p/therm gain, although not enough to bolster the curve as Summer 22 and Winter 22 dropped 0.81p/therm and 0.82p/therm on the week.

Power markets were generally kept in lockstep to gas with front month UK baseload gained £3.23/MWh, whilst Summer 22, and Winter 22 dropped £0.54/MWh and £0.08/MWh. Carbon markets were stronger on the week as Dec 21 EUAs gained €3.88/tonne, rallying hard on Wednesday and into the close of the week. Strength looked linked to increasing gas hub pricing and a structural tightness with the compliance market looking short into next April. UKAs also made gains with the Dec 21 contract gaining £2.78/tonne with traders seeing little excuse for significant downside with just three auctions remaining into the end of the year. Although the expected triggering of the Cost Containment Mechanism means that supply into next year will increase with more allowances to be auctioned, helping to cap bullish sentiment. Brent crude markets were mixed with strength at the start of the week linked to a supportive U.S. infrastructure bill, higher than expected Chinese exports, and Saudi crude rising in price. However bearish sentiment came from higher-than-expected US inflation numbers, OPEC+ trimming their demand forecast for rude and strength in the greenback.

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen gas markets open strong with front month up 9.45p/therm and back above 200p/therm. Strength looks linked to fears around the halting of Russian gas flow via Belarus as well as comments from the UK armed forces that we should be prepared to ‘go to war’ with Russia, as the presence of armed force at the Ukrainian border grows. The NTS is forecast marginally long despite wind output below 2GW, which helped prompt power prices to push above £1,600/MWh in the day-ahead hourly auction in peak periods. Dec 21 EUAs are up €1.03/tonne whilst Jan 22 Brent is down 0.36/barrel on account of expected increases in supply from US strategic reserves. 
 

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