Weekly Energy Market Update - 22/11/2021

Last Week’s Pricing & Commentary  

Last week saw a bullish start to the week with losses later in the week not enough to stave off weekly gains with front month, Summer 22 and Winter 22 gaining 25.46p/therm, 4.54p/therm, and 4.60p/therm. Gains were linked to temperature forecasts dropping as well as the German regulator halting the Nord Stream 2 certification process because the entity making the application was not a German one. This, and resulting momentum, helped front month to reach a high of 255.65p/therm by mid-week with the market worried once again about gas balances over Winter, cooler temperatures across Europe on the horizon, and growing tensions with Russia around the forces amassing on the Ukrainian border. However, the latter half of the week generally saw losses with attempted moves higher squashed by sellers. Front-month settled c. 36p/therm lower than the high, with little in the way of news helping to move the contract lower. Some were linking weakness to profit-taking whilst others were pointing to the breakthrough of key downside technical targets.

UK power markets were also stronger on the week, outperforming gas at the front of the curve on the back of further supportive strength in carbon. Front-month, Summer 22, and Winter 22 UK base gained £39.26/MWh, £6.38/MWh, and £6.66/MWh on the week. The UK prompt was strong early on in the week with units being called in the BM at pricing in excess of £3,000/MWh, although length in the system was enough to stop this hitting system prices. However, for the rest of the week, the market was kept largely in check by higher wind load factors. Carbon markets were strong last week with EUAs hitting several new highs, as some linked strength to a ‘COP premium’. Dec 21 EUAs finished the week up €6.09/tonne and managed to hold on to gains in the latter half of the week despite falling gas pricing, which should be regarded as bullish. Dec 21 UKAs also had a strong week, gaining £6.46/tonne, helped higher by a strong auction on Wednesday clearing at £59/tonne, largely in line with market pricing. The Brent crude market was the odd one out last week as the Dec 21 contract posted a $3.28/barrel loss on the week. Bearishness came from fears that the US would release strategic reserves and encouraged other large consumers to follow suit to temper pricing, which was further amplified by China appearing to agree to join the strategic reserve selling effort. Also adding pressure was strength in the dollar.

Last Week’s Average Generation Stack

This Morning’s View

Gas markets opened weak before going on to gain with Dec 21 NBP sitting 1.52p/therm above settlement. The NTS is forecast 15.8mcm long despite demand moving to c. 12mcm above seasonal norms as temperatures fall and gas-for-power demand sits above 80 mcm. Dec 21 EUAs have hit fresh highs again trading above €70/tonne whilst Jan 22 Brent climbs by $0.62/barrel.
 

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