Weekly Energy Market Update - 17/05/2021

Last Week’s Pricing & Commentary

Carbon continues to provide direction for gas and power contracts which is leading to increased volatility across the commodities as, despite an overall bullish move, carbon is in a cycle of hitting fresh highs before profit-taking resumes, leading to wide ranges and rapid changes in sentiment. Moreover, whilst gas is finding support from strength in carbon, the commodity is gaining on its own merit too with worries around European storage remaining as shippers opt to withdraw as temperatures have generally sat below seasonal norms. This has resulted in a further loop where the scarcity of gas is incentivising coal generation, which improves coal margins, bringing further EUA demand, which results in gas prices having to rally further to facilitate storage injection, which improves coal margins. Dec 21 EUAs are now up almost 75% from the start of the year, a meteoric rise, with the contract posting a gain of €5.75/tonne last week. The contract settled comfortably in the mid €50’s, helped by a day of consistent gains over Friday.

Gas and power contracts found strength along the front of the curve with Jun 21 NBP and baseload contracts posting gains of 5.71p/therm and £8.23/MWh over the course of the week. Losses further out were still clear, although paled in comparison to moves at the front end. Summer 22 NBP and baseload rose 1.62p/therm and £4.56/MWh by Friday. Brent prices swung around last week, trading in wide ranges as volatility ensued although the Jul 21 contract ultimately finished the week where it began, down just $0.17/barrel. The ever-present worry around COVID cases in India kept Brent prices in check whereas the cyber-attack on the East Coast Colonial pipeline helped to pull prices higher. Ultimately the two overwhelming drivers cancelled one another out to leave Brent prices sitting just a couple of dollars below $70. 

Last Week’s Average Generation Stack

This Morning’s View

Prices sink at the open this morning as carbon shrinks back to near €56/tonne with the Dec 21 EUA contract down €0.91/tonne from settlement. Gas continues to take direction from volatile carbon as the front end of the gas curve along to Winter 21 plunges lower. Jun 21 NBP is down 2.96p/therm from settlement finding pressure from low renewable output and weakness in carbon. Demand jumping back above seasonal norms, leaving the system slightly short this morning, is highlighting tightness in system prices already printing a high this morning of c. £125/MWh which could provide support. Additionally, weak contribution from renewables this morning has led to coal output remaining in the stack whilst gas burn generation provides over 50%. Brent markets are marginally below settlement as Jul 21 sits $0.10/barrel down, finding increasing COVID cases in India and Asia in general weighing on demand recovery expectations. 
 

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