Last week was a period of weakness for most of the energy complex. Gas began the week largely sideways as Monday brought losses and Tuesday brought offsetting gains in the front month and season contracts. However, from Wednesday to the end of the week the Sep-19 contract lost c. 2 p/therm and the Winter-19 contract lost 1.2 p/therm in three days of near consistent selling. Power followed the same pattern as gas with the relative strength early in the week followed by losses from Wednesday onwards as well as more exaggerated losses on the front month compared to the front season and the rest of the curve. This move downwards puts the Winter-19 NBP and Winter-19 baseload power contracts at close to 6-month lows, in line with pricing at the start of July and March respectively. The losses on the week may be linked to several things. Last week saw warmer weather and higher wind generation as well as some of the UK’s nuclear fleet coming back online, both lowering gas-for-power demand, bringing the NTS demand closer to seasonal norms. The contracts may have also traded lower on momentum from the macro-economic picture and other energy complex contracts such as carbon showing weakness.
Carbon had a relatively dramatic week in terms of pricing. Monday saw the Dec-19 contract lose c. €1.4/tonne across the day, while Thursday saw the contract shed a further €0.9/tonne. These losses have brought the settlement below the €26/tonne mark and have erased the gains the commodity made through July to the highs of €29.95/tonne. Some in the market are discussing the macro-economic background as a driver for losses as the US Treasury yield curve inverted sparking fears of a slow-down. This would clearly affect many energy complex contracts but as much of carbon buying and selling is still linked to ETS compliance and primary industry, this may magnify losses in the commodity. While carbon was interesting this week, it was outshone by oil contracts. The contract traded sideways on Monday before exploding up in value on Tuesday at 14:30 with the Dec-19 contract gaining c. $2.4/barrel in a matter of hours, likely on the news that Trump and the US were delaying tariffs on China to the end of the year to ease fears of the impact on the US economic picture. However, these gains were short-lived, and the contract gave up the gains by 18:00 on Wednesday, when the contact lost c. 3% in the afternoon’s trading. This has been linked by some in the market to the release of weak economic data as well as a build in US Crude inventories, which came as a shock to many in the market given the current relative weakness of the market and OPEC discussing production cuts.
This Morning’s View
This morning, volumes traded across the NBP are low and prices have tracked down another 0.6 p/therm on the front month. The UK gas network has opened oversupplied with physical flow exceeding demand by 18 mscm, due to slightly higher than recent Langeled flows despite outages at Barrow North. If this oversupply carries on throughout the day, this may continue to provide downwards pressure on prompt gas and allow the contract to be pushed lower. Wind forecasts are holding relatively strong for today but are expected to fall tomorrow which may add some upwards pressure to DA power and gas pricing. Early carbon movements have been up, with the Dec-19 contract breaching the €26/tonne mark again. The upcoming week could provide markets with some clarity as to the macro-economic picture with the Jackson Hole Symposium beginning on Thursday as well as Fed Chair Powell’s speech on Friday. As we move towards the summer-19/winter-19 shoulder months it will be interesting to see how the markets respond to current lows as the UK supply and demand pictures become clearer.
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