Weekly Energy Market Update - 25/10/2021

Last Week’s Pricing & Commentary  

Last week saw gas markets drift lower after an explosive start on Monday. Front-month traded a near 59p/therm range on Monday as the news broke that Gazprom had again failed to book any capacity via Ukraine for the upcoming month and had booked way under the available capacity via Mallnow too. However, given recent Russian tactics, many thought this auction inaction was already priced into the contract, and pricing settled only 3p/therm above the prior day. Tuesday and Wednesday saw dips well bought and the front of the curve moved higher day on day, although the latter days of the week saw sellers brought to the fore and the contract ultimately dropped 15p/therm on the week. Little has changed in terms of fundamentals apart from some calling an end to injection season a multi-year lows as EU nominations switched to net withdrawals last week. Weather will be a key factor in determining price action with an expectation of volatility and sensitivity to any temperature forecast runs showing cooler than previously thought conditions.

The rest of the curve ended the week almost flat with Summer 22 and Winter 22 dropping just 0.54p/therm and 0.05p/therm respectively. Power markets tracked gas, but bearishness was bolstered further by weakness in carbon markets. Front-month, Summer 22, and Winter 22 baseload dropped £32.97/MWh, £1.90/MWh, and £1.74/MWh. Prompt power markets were kept somewhat in check by higher wind output last week with negative pricing and a high in the day-ahead auction of c. £294/MWh, a far cry from the four-figure pricing we saw the prior week. Carbon markets were weaker last week, ultimately failing to recover from a soft first few days of trading as Dec 21 EUAs gave up €1.17/tonne and Dec 21 UKAs dropped £2.12/tonne. The UKA auction last week cleared below where the market was trading once again, but less so than the previous auction, which only partially cleared due to government intervention, which seemed to help buyers gain confidence late in the week. Brent crude markets gained last week with Dec 21 rising $0.67/barrel as fuel switching, from gas or coal to oil where possible, helped to support the demand side alongside OPEC+ continuing to honour supply cuts helped to support the curve. US stockpiles once again saw a week-on-week drawdown as refinery margins remain high. 

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen gas markets once again push higher with front-month up 12.78p/therm and already sitting in the middle of last week’s trading range. The NTS is forecast 2mcm short as beach supplies trend lower from last week whilst power station demand ticks higher with wind output sitting below last week’s average. Day-ahead wind forecasts look healthy, building into the evening peak which could see day-ahead auction pricing somewhat pressured. Dec 21 EUAs are up €1.39/tonne, feeling support from gaining gas, and Dec 21 Brent gains $0.67/barrel.

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