Weekly Energy Market Upate: 22.02.2021

Last Week's Pricing and Commentary

Last week saw gas and power markets give back cold weather premiums as mild and windy conditions eased any tensions at the prompt despite Norwegian outage. Gas markets did post some gains on Thursday as traders began to worry about the LNG supply stack with disruption from freezing temperatures in Texas and cold conditions in Japan drawing cargoes East. However, with Qatari gas making a comeback into the UK delivery roster along with deliveries from other areas of the US and forecasts showing UK conditions were not set to get much cooler into March, Friday saw these worries dissipate and the market sell off. Front month NBP dropped 1.83p/therm on the week, whilst Summer 21 and Winter 21 posted losses of 0.60p/therm and 0.55p/therm. Power markets tracked gas with front month, Summer 21 and Winter 21 dropping £2.85/MWh, £2.07/MWh, and £1.58/MWh.

Weakness in gas was also exacerbated by carbon markets failing to hold highs with four out of five days bringing within-day losses for the Dec 21 EUA contract. The contract gave up €2.79/tonne on the week and the all-time highs of €40.64/tonne posted early in Monday’s trading seems a long way away for the contract now. Although, market participants seem to be split on their view for carbon markets with some expecting further losses in the near term whilst others are bullish, viewing recent drops as a dip to buy with recovery on the way.

Brent markets had an interesting week with the first half of the week generally bullish as cold US temperatures was said to support demand, however gains were given back Thursday and Friday for the Apr 21 contract as the market realised that US refinery demand would be cratered for weeks. Market participants had called this a timely correction with the march up of the market over the past few weeks and were not generally concerned about a full halt in price recovery with vaccine roll outs continuing as well as a fundamentally tighter market.

Last Week's Average Generation Stack

This Morning's View

This morning has seen gas markets tumble with Mar 21 NBP down 1.40p/therm as forecasts continue to show that the likelihood of frigid conditions into March in the UK is relatively small. The NTS is forecast to close 8 mcm long as Easington flows pick up once again whilst gas demand is some 58mcm below seasonal norms as warmer and windy conditions prevail. Elsewhere, Dec 21 EUAs are fighting to stay in the green currently up €0.10/tonne although now €0.50/tonne off the morning’s high, which saw the contract push back above €38/tonne briefly. Brent markets push on with Apr 21 up $0.64/barrel as easing conditions in the US sees supply slowly filter back at a rate that continues to remind traders of the relatively tightness of the market but not fast enough to trigger selling. Goldman Sachs have also pushed their price targets for Brent higher, helping to spur some buying.

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