Weekly Energy Market Update: 23/03/2020

Last Week’s Pricing & Commentary

There was extreme weakness across the energy complex with carbon and oil dropping c. 25% on the week with gas and power posting significant losses as well. Coronavirus news and developments continue to pull contracts lower as governments increase measures to limit the impact and spread of the virus as worries of a global economic slowdown build and global demand for energy complex contracts wanes somewhat. Monday and Tuesday saw commodities drop lower with oil continuing to lead the bear run as May 20 Brent dipped below the $30 mark at several points over the course of Monday before losing close to 16% on the day. This occurred despite the Fed’s $0.7 trillion & 0% rate interest package. Tuesday then saw the contract fall further, eventually settling at $28.73/barrel with Saudi Arabia still set on increasing production through March into April despite such low prices. Dec 20 EUAs began Monday bouncing off the €20 mark several times before eventually falling below this level down to a €19.09 low.

The contract pushed slightly higher through to the close before trading lower yet again over the course of Tuesday. Demand fears and the first failed auction of the year spurred losses as the contract lost €1.09/tonne on the day and settled at €18.31. Gas and power pushed lower over Monday and Tuesday despite colder weather forecast through to the end of March. Summer 20 NBP and baseload lost 0.47p/therm and £1.32/MWh on Monday. Weak carbon and oil and a drop in demand helped contracts continue lower with Summer 20 NBP and baseload posting losses of 0.60p/therm and £1.02/MWh on Tuesday. 

Wednesday was the same story across the complex, despite gas Apr 20 NBP rising 0.16p/therm on the day, as a weak open below Tuesday’s settlement for gas wasn’t enough for the commodity to post any actual price increases. Power, carbon and oil all continued lower over the day as fears of a global recession rumbled on, the pound fell to its lowest level against the dollar since 1985, the European Central Bank launched a £700bn emergency package to combat coronavirus impacts and the UK government announced schools would close from Friday, except for key workers children, as the coronavirus continues to impact all aspects of life. 

Thursday saw much of the energy complex trade up from the lows with oil bucking recent trends as May 20 Brent rose $1.52/barrel from the open. Dec 20 EUAs followed suit rising €0.84/tonne on the day, lifting the contract back above the €16 mark. Apr 20 NBP and baseload pushed 0.76p/therm and £0.86/MWh higher over the course of the day as well. However, this uplift was short-lived as Friday saw contracts tumble again with Apr 20 NBP and baseload contracts losing 0.91p/therm & £1.06/MWh on the day. Dec 20 EUAs and May 20 Brent lost €0.55/tonne & $1.61/barrel to cement a week of significant losses.  

This Morning’s View 

A slow start to the morning for gas and power, as very little volume has traded currently with volatility expected to remain whilst traded volumes are expected to ease off. Renewable generation is high this morning with solar at c. 4.5GW and wind at c. 11.5GW, accounting for over 40% of the stack this morning. Forecast demand is well below seasonal norms, despite slightly colder weather expected through to the end of March. National Grid report the system has opened long which could help push prompt contracts lower still. Futures contracts continue to fall with gas, power, carbon and oil all off from settlement. Apr 20 NBP, Dec 20 EUAs and May 20 Brent are down by 0.56p/therm, €1.31/tonne and $1.32/barrel from settlement at the time of writing. It is thought that contracts could continue to ease off in the coming weeks with less speculative trading taking place. 

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