Weekly Energy Market Update - 29/06/2020

Last Week’s Pricing & Commentary

Last week’s price action across the complex largely lifted over the first half of the week before a softer end to the week helped prices to look relatively sideways to the week’s open. UK power and gas largely tracked movements in benchmark carbon and oil pricing. Tuesday saw strong gains in both curves helped by Dec 20 EUAs punching €0.88/tonne higher and settling well above the €25/tonne mark. However, as carbon pricing drifted lower over the rest of the week, gas and power pricing followed. Front month NBP dropped 0.61p/therm over the course of the week as seasonal contracts also sustained losses with Winter 20 and Summer 21 giving back 0.38p/therm and 0.71p/therm respectively. On the prompt end of the market, gas demand fluctuated on the week on volatile renewable output along with still strong continental export and LNG flow. Some in the market are keeping a strong eye on Henry Hub pricing, which dropped again last week opening the Atlantic spread which could see US LNG deliveries in Q420. The UK power curve felt greater support from carbon than downwards pressure from gas with Jul 20 and Winter 20 gaining £0.11 /MWh and £0.34/MWh while Summer 21 dropped just £0.20/MWh on the week.

Over the weekend wind output picked up with little demand to soak it up, forcing pricing strongly negative for almost 26 consecutive settlement periods on Sunday to as low as -£65.94/MWh. Dec 20 EUAs spent much of the week testing €25/tonne as a breach of the 200MA on Tuesday saw the contract race higher, however strong supply and weaker oil/equity pricing ultimately saw the contract settle back €0.27/tonne below the mark. Brent markets continued to trade in the recent range as traders weighed up conflicting news around some returning road fuel demand as lockdowns ease and travel picks up with bearish factors including new record high US crude inventories and spiking COVID-19 cases across major economies. The Aug 20 Brent contract dropped $0.68/barrel on the week, just clinging on the $41/barrel level despite spending some time below $40 during mid-week trading.

Last Week’s Average Generation Stack

This Morning’s View

This morning has seen UK gas pricing firm a little with front month up 0.23p/therm, likely taking direction from Dec 20 EUAs up €0.10/tonne. The NTS is forecast long as demand drops 16mcm below seasonal norms with strong UKCS supply and LNG outflow back above 40mcm. Pricing could see some support from 14mcm of storage injections, however the current wind output of almost 12 GW, dropping power station demand down to 30 mcm, could weigh on prompt power and gas, having already pushed the power system price below 0 for settlement period 12. Brent markets are weaker still after a weekend of bearish US COVID-19 data, especially in states showing stronger gasoline demand, which could halt the recent recovery, compounding losses. The Aug 20 contract is currently down $0.83/barrel testing the $40 level once again.
 

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