Weekly Energy Market Update - 24/02/2020

Last Week’s Pricing & Commentary

Last week saw mixed price action across the energy complex. UK gas pricing found support on the near-curve from storm Dennis-related disruption to LNG deliveries at Milford Haven. This disruption saw the system open short for much of the week and the resulting price action on the prompt helped to apply upwards pressure to the curve. Friday saw the NTS buck the week’s trend of opening short and correspondingly prices fell off at the open and never recovered with the Mar-20 contract posting a loss of 1.13 p/therm on the day. Seasonal contracts as you move further down the curve felt less pressure from a firmer prompt with Summer 20 gaining only 0.63 p/therm on the week and Winter 20 posting a small, 0.35 p/therm, loss. A stronger prompt was not the only supportive force on the curve as carbon and oil markets pushed higher over the course of the week. Power followed a similar trend to gas with the front supported and the backend weakening. Mar 20 baseload gained £0.56/MWh on the week, while Summer 20 and Winter 20 baseload lost £0.37/MWh and £1.05/MWh respectively. Weekly losses in Winter 20 were helped by an especially weak day of trading on Friday with a £0.51/MWh loss on the day.

Carbon markets were strong in the first half of the week, gaining €1.50/tonne by settlement on Wednesday. This strength was linked to improved coronavirus sentiment on lower infection rates, rallying fuel curves and technical moves higher. The contract reached highs of €25.85/tonne and despite some in the market eyeing €26/tonne as an upside target, the contract traded down and settled at €25.61/tonne on Friday, helped lower by weaker fuels and retreating oil pricing. Apr-20 Brent displayed a distinctly similar trend posting most of the week’s gains on the first half of week, gaining $1.83/barrel by Wednesday’s settlement. Strength looked to be driven by falling infection rates of the coronavirus in China, however later in the week as a new coronavirus hotspot opened in Daegu, South Korea, sentiment worsened as markets worried about China’s ability to contain the virus and it’s impacts. Also helping the curve move higher was a smaller than expected build in the US crude inventories and the expectation of deeper OPEC+ supply cuts, as markets continue to worry about oversupply.

This Morning’s View

This morning has seen the gas market open weak down the curve with Summer 20, Summer 22 and Winter 22 down 0.82 p/therm, 0.95 p/therm and 0.70 p/therm respectively. However, front month is down just 0.22 p/therm as National Grid are reporting a 30 mcm undersupplied NTS, with LNG flows dropping again to c. 32 mcm. Wind output is currently around 13 GW and is expected to pick up a little over the course of the day, which may help to cap any gains on the prompt. Both carbon markets and oil markets have weakened this morning with Dec 20 EUAs down €0.67/tonne, testing the €25/tonne level, and Apr 20 Brent is down almost $2/barrel. Brent pricing has slid on the news that several countries across the world are reporting increased cases of coronavirus, extending demand worries outside of China. Italy outlined Coronavirus cases rising from just a few to 152 this weekend, showing a quick rise in confirmed cases. This pressure has pushed into carbon markets as the possibility of corona-influenced decreased economic activity and UK auctions set to return could stoke traders’ fears of oversupply, despite increased compliance buying.

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