Weekly Energy Market Update - 30/03/2020

Last Week’s Pricing & Commentary

Another week of losses for much of the complex. The NBP had so far held relatively well amidst crashing oil and carbon prices, however last week saw front month and front season UK gas drop 3.14 p/therm and 2.55 p/therm respectively. In a week where Boris Johnson brought an end to non-essential travel and business operations, UK demand for power and gas saw marked reductions placing strong pressure on pricing. With markets already worrying about oversupply from the demand side, a weak Asian bid for LNG added to bearish pressures with already cratered demand in China and now India also looking to invoke Force Majeure clauses to reject delivery as it goes into shutdown. However, looking at the forwards curve, the market seems to be largely pricing in the bulk of the disruption as relatively short-term with Winter 20 gas losing just 1.04 p/therm on the week. Having said that Winter 20 gas also broke to fresh lows on Friday as the contract gapped down almost 1 p/therm on the open and going on the lose a further 0.4 p/therm on the day. Power followed gas lower showing the same patter with marked weakness on front month and front season power but losses easing towards the back end. Apr 20, Summer 20 and Winter 20 baseload dropped £4.25/MWh, £2.63/MWh and £0.91/MWh on the week. 

Carbon pricing remained volatile with Dec 20 EUAs trading in an almost €3.5/tonne range. The contract opened the week €0.90/tonne down from Friday’s settlement and traded down to the lows of week at €14.34/tonne. However, over the next three days the contracts rallied through several resistance levels and had looked to test €18/tonne before marked weakness on Friday kept the contract to a weekly gain of €1.18/tonne. Support for carbon was found in several monumentally large economic stimulus packages unveiled by several states, including a US package worth $1.7 trillion and a UK growth package of £350 billion. These stimuli also helped indices reverse severe downtrends, however many analysts still expect continued selling as the markets process the economic fall-out and no change in key demand fundamentals. Oil markets were again extremely volatile on the week trading in a $4.5/barrel range. The economic stimuli may have somewhat helped to slow the decline of crude with the May 20 Brent contract losing just $1.82/barrel compared to craterous losses earlier in March. However, with oil demand being crushed from all sides, reports of worldwide storage sites filling up and signals of continued intent to maintain production from Saudi Arabia, it may be difficult for crude markets to find much support. 

This Morning’s View

This morning has seen continued weakness across the complex. Front month and front season gas are currently down 0.73 p/therm and 0.45 p/therm respectively, whilst May 20 Brent is down €1.96/barrel. Dec 20 EUAs are bucking the trend, currently up €0.40/tonne. With reports over the weekend suggesting that the economic shutdown may continue for another 3-6 months, the front of the curve may continue to sell off. However, with commodity pricing so low, we could see a situation where bargain-hunting buyers are tempted further down the curve across commodities. National Grid is reporting a 22 mcm undersupplied NTS as LNG output drops to c. 50mcm, wind output drops from highs of up to 12GW over the weekend to close to 6 GW this morning and a dearth of solar production increases gas for power demand. Also supporting the prompt are reports that UK temperatures are set to fall by several degrees over the coming week, although this is counteracted by falling demand so may not see much upside priced in.
 

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