Weekly Energy Market Update - 16/03/2020

Coronavirus continues to play havoc across the energy complex and global stock markets with all eyes on any new developments as governments and banks scramble to limit the economic impact.

The week began with crashing oil prices pulling the complex lower on the open as May 20 Brent opened almost $7/barrel below Friday’s settlement and traded down to lows of $31.02/barrel, a massive 30% drop from Friday’s close. Power sunk lower on the open with much of the curve weakening and Winter 20 posting a loss of £1.05/MWh on the day. In contrast, gas and power managed to find some support from the weak open with both commodities pushing higher over the course of the day. Apr 20 NBP rose 0.12p/therm on the day as it was propped up by prompt markets as analysts began to worry about short term supply fundamentals given high winds disrupting LNG delivery at Milford Haven again. Dec 20 EUAs traded down to the mid €22’s before pushing higher and posting a gain of €0.27/tonne from the low open. Tuesday brought strength to the energy markets with oil bouncing back from the lows as May 20 Brent rose to c. $37/barrel and helped support other commodities. Near-curve seasonal contracts experienced stronger opens before jumping higher with Summer and Winter 20 showing gains of 0.58p/therm and 0.62p/therm. There may have been shorts closing positions that further provided price support. Power displayed a similar trend with Summer and Winter 20 up £1.09/MWh and £1.07/MWh respectively. Carbon rallied with Dec 20 EUAs gaining €0.66/tonne on the day to regain levels above €24. Gas and power continued higher on Wednesday despite weaker oil and carbon which were pulled down by WHO officially upgrading the coronavirus to pandemic status, weakening equities, US stockpile increases beyond expectations and further action from Saudi Arabia, Russia and UAE to increase supply. Apr 20 NBP and baseload increased by 0.39p/therm and £0.76/MWh on the day as a result whilst May 20 Brent and Dec 20 EUAs decreased by $1.48/barrel and €0.18/tonne on the day. Thursday was a similar story with gas and power trying to push higher on the day whilst oil and carbon continued to fall. Power did post slight losses eventually as later rallies couldn’t fully retrace the losses from a weak open. Friday brought weakness across the complex with gas and power falling from a higher open helping to retrace some gains whilst carbon tumbled lower, cementing big losses for the commodity on the week. Brent stabilised somewhat but losses were still significant for the week. Apr 20 NBP and baseload lost 0.22p/therm and £0.20/MWh from the open. Dec 20 EUAs lost €0.64/tonne whilst May 20 Brent rose $1/barrel on the day.

This Morning's View

Weak start to the morning with gas, oil and carbon off whilst power is likely to follow at the open. Summer 20 NBP, Dec 20 EUAs and May 20 Brent are off by 0.494p/therm, €1.40/tonne and $2.90/barrel from settlement. Demand is in line with seasonal norms this morning with supply slightly long according to National Grid. CCGT generation is close to 50% this morning with renewables expected to pick up and lighten the load on gas demand. The US has announced an emergency rate cut and huge stimulus plan to help ease economic impact caused by coronavirus, but markets weaken as many fear banks and governments have little more they can do to stop a global recession. The UK government have confirmed they will provide live daily announcements to keep the public informed regarding the coronavirus developments and it is likely that markets will continue to be impacted by headlines.

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