Weekly Energy Market Update - 26/05/2020

26 May 2020

Home Weekly Energy Market Update - 26/05/2020

Last Week’s Pricing & Commentary

Commodity

Unit

Settlement Price

Change Since 01 Jan 20

Change on Week

UK Gas NBP Jun 20

p/therm

9.46

-65.70%

-24.38%

UK Gas NBP Winter 20

p/therm

30.63

-29.50%

-6.89%

UK Gas NBP Summer 21

p/therm

29.20

-23.57%

-3.16%

UK Power Base Jun 20

£/MWh

24.00

-36.07%

-5.14%

UK Power Base Winter 20

£/MWh

41.38

-14.20%

-0.36%

UK Power Base Summer 21

£/MWh

37.23

-12.30%

1.39%

Carbon EUA Dec 20

€/tonne

21.59

-12.34%

11.12%

Oil Brent Crude Jul 20

$/barrel

35.53

-44.33%

8.39%

Last Week’s Average Generation StackLast week saw the front of the NBP curve slide lower still as traders priced in structural oversupply and unseasonably warm and windy weather, seeing the front month future lose an impressive 3.05p/therm on the week, breaking the 10p/therm mark. Winter 20 also saw heavy selling action, posting a loss of 2.27p/therm bringing the contract’spremium to Summer 21 to just 1.5p/therm, as high storagecombined with abundant LNG on the seas take their toll. Summer 21, and further down the curve, was a little more resilient losing0.95p/therm. Power markets followed a similar trend to gas but were somewhat stronger with frontmonth losing £1.30/MWh, Winter 20 trading largely sideways and Summer 21 posting a small gain of £0.51/MWh on the week. The front of the power curve was beleagueredby weak gas, continued low demand and strong renewable output leading to negative pricing in the DA and imbalance markets late in the week. However, further down the curve contracts were stressed less by gas and supported by gaining carbon markets.

Dec 20 EUAs punched higher last week supported by news headlines such as European leaders agreeing a €500 billion fund for recovery post covid-19 and the German government agreeing to launch a national carbon trading scheme including for heat and transport with minimum prices €15/tonneabove where previously discussed. Also supporting carbon markets was a lack of auction supply in the second half of the week,as well as stronger equities and oil pricing. Brent crude was largely stronger on the week as buying was supported by signs that Chinese demand for raw materials is increasing and returning demand for refined products with increased refinery runs and more cars on the road across Europe and Asia. Both the EIA and API reports also detailed an unexpected 5-million-barrel drop in US crude stockpiles, a bullish indictor and bringing analysts to discuss the physical markets as potentially undersupplied in the second half of the year. However, despite a $2.75/barrel gain on the week for Jul-20 Brent, the contract still sits 45% lower than the start of the year highlightingcaution in the market of a second wave of the virus and around the macroeconomic health of economies around the world.

Last Week’s Average Generation Stack

 

Gas

Wind

Solar

Hydro

Nuclear

Imports & Exports

Biomass

Pumped Storage

Coal

GW

5.95

7.60

7.57

0.25

5.65

1.90

1.71

0.00

0.00

%

19.41

24.83

24.73

0.81

18.44

6.21

5.57

0.01

0.00

This Morning’s View

This morning has seen UK gas punch higher in line with stronger European gas prices over yesterday’s bank holiday as well as the news that non-essential shops are expected to reopen in the UK from June 15th, signalling a slight recovery in demand. Front month is currently 1.66p/therm above settlement, comfortably above the 10p/therm mark once again. However retail gas demand, especially in the summer, is relatively weak and with strong storage levels and Qatar making a bid for increased LNG market share while US producers stage shut-ins, the system is still likely to be oversupplied, which may see some premium removed over the day/week. EUAs are largely flat, providing little in support for power and further dated gas contracts. Jul 20 Brentcontinues its move up, currently $0.77/barrel above settlement as the market grows in confidence that producers will continue to kerb supply.

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