Weekly Energy Market Update - 27/08/2019
27 Aug 2019
Last week’s trading brought further losses for power and gas contracts. In the early parts of the week, front month gas displayed similar patterns of morning rallies following by losses in the afternoon, but not enough to stop the contract rising day-on-day. However, Thursday’s and Friday’s trading saw the contract shed 2.3 p/therm, possibly on the back of system length, reduced gas-for-power demand and weakness in other energy complex contracts. This weakness in the front month was also felt further down the forward curve. UK Power followed gas and may have also felt some additional downwards pressure from falling carbon pricing. These losses put the Winter-19 NBP and Base Power contracts at calendar year lows, with gas back at levels last seen around 2 years ago. This perhaps reflects near-full gas storage levels across Europe, predicted LNG oversupply in the near term and the fears of a global economic slowdown seen in other contracts.
Carbon had another week of losses despite the Dec-19 contract showing some strength in Monday’s trading with gains of over €0.5/tonne on the day. The rest of the week saw the contract fall to settle at €25.1/tonne on Friday, representing 9-week lows. Many in the market are discussing technical and macroeconomic weakness as the key drivers after the Dec-19 contract lost c. €0.4/tonne after the news broke that China were imposing tariffs on US goods including soybean and crude oil worth approximately $75 billion. However, yesterday’s trading saw the Dec-19 contract show strength, erasing Friday’s losses to close at €25.83/tonne. Oil displayed gains early in the week with the Oct-19 contract trading up by over $1.5/barrel. However, later in the week the Brent Crude Oct-19 contract lost over $1/barrel, possibly due to rumours of cuts to US interest rates not happening, Friday’s news of China’s tariffs, and weak US manufacturing data all stoking fears of global economic performance and hence oil demand. Yesterday saw the Oct-19 contract display strength in the morning, gaining over $1.5/barrel. However, much of these gains were erased throughout the rest of the day’s trading and the contract settled at $58.7/barrel, still over a dollar below the $60/barrel mark much of the market has been discussing for some time. This slight show of strength may be linked to positive sentiment towards US-China tensions, following tweets made by Donald Trump as well as OPEC-supported supply cuts.
This morning has seen front month and front season gas drop a further c.0.9 p/therm and c. 0.4 p/therm respectively from settlement. This may be linked to the NTS opening in balance as well as continued higher than norm temperatures. With this said, higher demand than late last week, low wind generation, and planned outages at Troll and Kollsnes could put the NTS under a degree of stress and support upwards price movements. Early morning weakness is also seen in the Dec-19 EUA contract, which has traded down by almost €0.5/tonne so far. Oil continues to show some strength this morning with the Oct-19 contract rising by $0.28/barrel. With August now drawing to a close, volumes are expected to pick up in the next couple of weeks with trading floors beginning to fill back up.
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