Weekly Energy Market Update - 24/05/2021

Last Week’s Pricing & Commentary

Last week’s trading saw the energy complex, along with wider markets, take a dive from the weeks open. Gas markets were weak through the first half of the week with Jun 21 NBP opening just below 68.50p/therm on Monday and settling at 57.73p/therm on Wednesday as sell-offs in EUAs and equities helped to depress pricing. Fundamentally, nothing much changed with storage levels still well below what would be comfortable at this time of year due to the wintery start to spring. Although some may argue that the sanctions being waived on the CEO of Nord Stream 2 may signal a change in policy towards the project, which could speed up the flow of Russian gas into Europe, the fact that the project still needs to find a party able to commission it due to other still present sanctions, it seems difficult to expect any flow in 2021. Thursday saw front-month gas reverse Wednesday’s losses and close the gap left by the weak open with the contract posting a strong 3.90p/therm gain within day whilst Friday’s trading saw the contract drift lower. Seasonal contracts largely mirrored the front-month with Winter 21 and Summer 22 dropping 4.53p/therm and 3.80p/therm. Power contracts tracked losses in gas and EUAs last week, posting impressive weekly losses, with front month, Winter 21 and Summer 22 dropping £2.79/MWh, £3.86/MWh, and £3.66/MWh on the week.

At the prompt end of the market, power was well supported for much of the week as the system continued to outturn short often held firm around £100/MWh, however, wind output picking up on Thursday and Friday helped to supress residual demand and helped to push the system long with wind farms being bid off in the Balancing Mechanism, which saw system pricing spend some time below zero with lows of c. -£45/MWh. Carbon markets were interesting last week with the advent of the UK Emissions Trading Scheme and the first UK Allowance (UKA) auction. UKAs traded at a premium to EUAs on the week as a fundamentally tighter scheme helped to support pricing. Dec 21 EUAs struggled over the first half of last week going from trading with a €56/tonne handle to a settlement of €49.68/tonne on Wednesday. Thursday saw buyers at the fore with the contract pushing up almost €3/tonne before Friday mirrored movements in gas, drifting a little lower but ending the week resolutely down. Brent markets also gave up value on the week as sanctions on Iran were expected to be lifted, losses in equities, and the expectation of interest rate rises all weighed on the commodity. Jul 21 Brent dropped $2.48/barrel on the week.

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen gas markets take a tumble with front month NBP down 0.88p/therm, tracking losses in EUAs as the Dec 21 contract is down €0.48/tonne. The NTS is forecast balanced despite higher demand than seasonal norms as the unplanned outage as Oseburg comes to an end and now is just planned maintenance. Lower wind load factors could support prompt pricing with output c 6.50GW and not forecast to increase day-ahead. Jul 21 Brent bucks the trend, currently up $1.10/barrel as talks on Iran sanctions stumble.
 

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