Weekly Energy Market Update -17/08/2020

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Last week saw choppy trading conditions across the energy complex with volatile price action on relatively thin volumes. Gas markets were weak until Friday, which saw the Sep 20 contract post a gain of 1.70p/therm from Thursday’s settlement and touch highs of almost 23p/therm. Seasonal contracts were also dragged higher during Friday’s rally with Winter 20 gaining 0.94p/therm within-day, which caused the contract to post a 0.74p/therm gain on the week. Friday’s upward movement was likely linked to rallying Henry Hub pricing on US heatwaves, symbolising we have truly entered a more global gas market with LNG volumes being of such importance to UK price action. Elsewhere in the complex, power markets generally softened on the week with Sep 20, Winter 20 and Summer 21 posting weekly losses of £1.38/MWh, £0.41/MWh, and £0.38/MWh as support from carbon fell away.

Dec 20 EUAs struggled to post a gain for much of last week dropping from Monday’s highs of €27.30/tonne to settle just over €1.80/tonne lower on Friday. A series of weak auctions, a feeling of oversupply and thin volumes meant heavy losses in the mid-week session, as the contract dropped through key technical levels such as the 50 day MA, failed to be recovered by a small tick up in price on Friday, driven by bullish gas. Throughout August trading levels below €25/tonne have looked well bid and with expectations of EC announcements of ETS tightening mid-Sep, we could see some support lent to EUA pricing over the coming weeks.

Brent prices seesawed during the first half of the week before the API report showed a strong drop in US crude stockpiles that was later confirmed by the IEA report. This helped the Oct 20 contract to settle just below $45.50/barrel on Wednesday. However, with US and China tensions rearing their head and the IEA cutting their 2020 crude oil demand forecast, the market began to price in worries of extended macroeconomic hurt and continued concerns of growing global coronavirus cases. This ultimately saw the Oct 20 Brent contract post just a $0.14/barrel gain on the week.

Last week's Average Generation Stack

This Morning's View

This morning has so far seen the front of the gas curve explode higher once again with Sep 20 currently up 0.77p/therm, although currently trading almost 0.65p/therm down from the morning’s high. Prompt fundamentals still look relatively comfortable with the NTS forecast 11 mcm long and Easington flows up to almost 50 mcm despite power station demand just above 78 mcm and wind output expected to remain below 3GW. Dec 20 EUAs pricing has firmed a little early on, up €0.21/tonne from settlement continuing Friday’s late strength and possibly finding support in bullish gas. Brent markets are also edging higher with Oct 20 Brent up $0.19/barrel as US-China tensions looked to have eased somewhat with China increasing US oil imports over August into September, also signalling that economic recovery may be outpacing concerns of a slowdown. Also providing some supportive sentiment is the Baker-Hughes operating rig count remains low.

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