Weekly Energy Market Update - 23/09/2019

Last week saw the front of the UK power and gas curves weaken over the course of the week. Front month gas lost 6.7 p/therm from the week’s open to Friday’s settlement, almost stripping out the gains from news-driven trading the week before. Whether or not these losses stick is yet to be seen with no definitive statement from the ASN on the fitness of the steam generator welds, as well as no final agreement between Russia and Ukraine on Russian gas transit to Europe. Further down the curve prices were more resilient to losses, with the NBP Winter 19 contract posting a 2.4% loss, mostly due to Oct-19 pulling the contract down, and Summer-20 posting small gains. UK power saw similar losses with the front month trading down 4.84 £/MWh over the week, and the front two seasons posting smaller losses being weakened by NBP contracts as well as losses in the carbon markets.

Dec-19 EUAs posted heavy losses on Tuesday and Wednesday last week and although the contract rallied up through the end of the week, it wasn’t enough to prevent losses of €0.30/tonne from the week’s open to Friday’s settlement. Weakness was attributed by some in the market to softening NBP contracts as well as the statement from EDF that potential faults in welds do not require immediate attention, easing fears of some of the French nuclear fleet being taken offline for winter. Strength later in the week may be linked to German climate policy meetings where the government suggested that they would support a ‘moderate’ EUA price floor as well as launching a national emissions trading scheme for heat and transport sectors. However, it is difficult to ascertain if any gains posted due to this news will remain as policy is notoriously fickle and may not come to fruition soon, if at all.

Brent crude posted strong gains on Monday’s open, linked to drone attacks on Saudi Aramco infrastructure. However, once the shock subsided the Nov-19 contract lost almost $2.2/barrel over the week. This was likely linked to statements from Saudi Arabia and the IEA that normal production would resume within weeks and that the reduction in supply to the markets would not be significant enough to require release of emergency reserves. However, analysts are still watching the situation carefully not only for political aggression with the US and Saudi Arabia laying the blame with Iran but also because Saudi Arabia is currently providing supply through inventories, not normal production so it is still difficult to assess if there will be any longer-term interruption to supply.

This Morning’s View
This morning the Oct-19 NBP contract has opened 1.3 p/therm lower from Friday’s settlement and despite a brief attempt to close the gap, it is currently still trading in line with the open. The contract may struggle to hold on to these losses as the prompt could be supported by National Grid reporting that the NTS has opened almost 20 mcm short with demand at c. 160 mcm due to early demand for gas burn generation. Winter-19 also opened 0.5 p/therm lower than settlement but is yet to see much activity this morning. Dec-19 EUAs have traded down €0.27/tonne this morning and Brent Crude has traded up a little, sitting 0.29 p/therm above settlement, maybe linked to continued uncertainty in the Middle East. Overall, last week was an extremely volatile week for the energy complex with trading being largely driven by news events. As we move closer to Oct-19 and Winter-19 expiry it will be interesting to see how aggressively the market responds to any bullish or bearish news, such as the pending ASN statement, as well as more fundamental drivers such as longer-term weather forecast revisions.
 

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