Weekly Energy Market Update - 18/10/2021

Last Week’s Pricing & Commentary  

Last week began with the front-month gas and power contracts uncharacteristically dropping whilst the rest of the curve ticked higher. Nov 21 NBP and baseload declined by 5.63p/therm and £1.05/MWh respectively. The NBP front-month contract initially opened above settlement in an all too familiar bullish movement however prices retracted around mid-morning, dipping back in line with the previous day’s settlement before the contract fell further in the last hour of trading to see a rare loss for the front-month contract settlement to settlement. Typically, the front-month contract has been the catalyst for the whole curve, and whilst the gas and power did end the week higher, early weakness here at the start of the week would have helped to see Nov 21 NBP gains capped compared to later contracts.

Mixed trading continued for the front-month contracts until Wednesday when both contracts found further support for declining wind output. With this said, volatility continued to be the best word to describe the gas markets with picking a mid-term direction difficult, although floods in one of China’s key thermal coal production provinces means LNG can be expected to continue to point towards Asia rather than Europe. Thursday saw prices bound higher, reaching the weekly high with strength seeming to be linked to buying at technical levels as well a stronger prompt with day-ahead wind forecast to drop from 10GW overnight to just 1GW by the end of the day, and statements from Russia that domestic supply needs would be a priority. Friday however saw prices retrace, losing value to settle in line with Wednesday’s level. The EUA/ UKA spread narrowed last week with Dec 21 EUA’s gaining €1.11/tonne on the week as €60/tonne proved to be sticky although the contract ultimately settled just below this mark. Dec 21 UKA’s lost £1.78/tonne on the week, creeping back closer in line with their European counterpart. Brent continued to find support from fuel switching as gas and coal prove to be costly in comparison despite Brent reaching multi-year highs itself. The Dec 21 contract finished the week $2.47/barrel higher, settlement to settlement with global demand recovery looking bullish into winter, further supporting the fuel. 

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen gas open below settlement although Nov 21 NBP has quickly bounced back towards this point after a low of 212.32p/therm. Wind output rose on Sunday although levels have only reached c. 7.5GW, helping ease some pressure from gas burn generation but not majorly changing the supply outlook. Dec 21 EUA’s are €0.77/tonne below settlement, up from the lows and possibly helped by strength in gas after the weak open. Dec 21 Brent is $0.71/barrel above settlement with supportive themes unchanged as the contract sits around the mid $85’s.  
 

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