WEEKLY ENERGY MARKET UPDATE – 21/02/2022

Last Week’s Pricing & Commentary  

Last week saw gas markets open strong, with front month pushing above 200p/therm, on Ukrainian-Russian tensions bubbling higher with US reports of an expected invasion by midweek published over the prior weekend. However, the market eroded this gain over the next two days as diplomacy efforts continued, Russia signalled that they would move troops away from the border, and the market seemingly discounted the likelihood of invasion and looked towards more bearish fundamentals with LNG on the way to UK & EU shores, mild temperatures, and high winds. Over the rest of the week, dips were well bought as no actual action to demilitarise the Ukrainian border materialised leading to losses being limited to 9.37p/therm for front month, 9.68p/therm for Summer 22 and 9.40p/therm for Winter 22. Power markets tracked losses in gas with Mar22, Summer 22 and Winter 22 UK base dropping £3.99/MWh, £4.71/MWh, and £3.52/MWh on the week. Percentage losses were smaller than gas, perhaps linked to lower liquidity but also stronger UKAs with the Dec 22 contract making gains on the week. Storms late in the week kept prompt gas and power markets somewhat in check. Carbon markets displayed some divergence with Dec 22 EUAs dropping €3.40/tonne whilst Dec 22 UKAs gained £4.35/tonne. European carbon pricing was hampered by a prominent MEP looking to bring in measures to dampen price spikes by relaxing the rules around injecting supply into the market. This divergence now sees the Dec 22 UKA contract price at a premium of just over £13.50/tonne to their European counterpart. Brent markets continued to remain relatively rangebound with competing price drivers in the form of Russian/Ukrainian tensions and fundamental tightness forecast for 2022 supporting pricing whilst Iranian nuclear talks continue to progress well which will see fresh supply come to market.

This Morning’s View

This morning has seen gas markets open weak with front month down c. 5.50p/therm, which looks linked to news breaking over the weekend that Biden was willing to meet with Putin to discuss Ukraine in the absence of any Russian invasion. The NTS remains forecast long, at 3.8 mcm, with power station demand only just 35 mcm as wind output continues to stay high at over 16GW, just over 40% of the supply stack. Elsewhere Dec 22 EUAs are down €1.14/tonne taking direction from weakness in UK and EU gas markets as well as investors still spooked by comments around potential plans to inject additional supply on price spikes. Brent markets grind higher despite supposedly easing Russian tensions and Iranian nuclear talks progressing well.

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