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WEEKLY ENERGY MARKET REPORT: 11th May 2020

Ignite bring you the latest energy news across the UK and Europe. We track and analyse changes in the energy market to keep you informed and up to date. Here’s the latest news from the UK, Europe and the rest of the world.

The UK natural gas forward curve signalled an increase, on a weekly basis, for the first time since the start of the pandemic, almost two months ago. The short-term change in direction is mainly attributed to an immediate, however short-lived shift in fundamentals, with demand picking up while the weather outlook had been revised to cooler for the previous week than expected. The UK power curve mirrored the natural gas movement, with June contracts above £25.50/MWh, while front season increased by 3.3% and settled at £41.41/MWh on Thursday.

In the wider energy commodity complex, Brent crude prices extended their gains and currently priced above $30.00/bbl while WTI crude prices have also rebounded to $24.74/bbl following a lower build up (4.59m barrels) in US crude inventories below forecasts (7.76m barrels). Carbon prices opened slightly higher than €19.00/t today as increased auction volumes keep adding pressure.

The UK energy market last week:

  • UK wholesale power prices rose by 2.3% on the curve, on average, on the back of increased demand caused by low temperatures and poor renewables generation.
  • Temperatures are expected to pick up form Thursday onwards.
  • Natural gas prices moved higher on the curve, 2.5% on average, amid increased levels of demand.
  • Oil prices have been clearly impacted by the OPEC+ supply cuts as well as from the gradual easing of restrictions and closed above $30.00/bbl. 

UK Natural Gas prices:  

British wholesale natural gas prices moved higher week on week before the Bank Holiday weekend. Import flows form Lagged picked up while there are 9 LNG tankers scheduled to dock in the UK in the next couple of weeks.

Month ahead settled on Friday at 13.75p/th on Friday, 2.5% lower from last week. In terms of curve contracts, Win-20 settled at 32.46p/th, that is a 3.4% higher, week on week, while Sum-21 rose by 2.9% weekly, at 29.11p/th.

UK Electricity Prices:

UK power prices were supported by the change in weather fundamentals as well as from the overall increase in the global commodity complex. Wind generation picked up from last week’s low levels. Wind supply contributes 35% to the power generation mix today.

Month-ahead closed on Thursday at £25.80/MWh, that is 1.4% higher, week on week, despite the overall softness in the forward contracts. Win-20 increased by 3.3%, week on week, before settling at £41.41/MWh, while Sum-21 closed 2.8% higher than last week, at a price of £36.35/MWh.

Macroeconomics:

The Monetary Policy Committee of the BoE decided to keep the same level of interest rates at 0.1% during last week’s meeting. The bond buying program remains at £645m while an increase in contribution could be likely along the way.

On the US macro front, the US economy lost another 20.5 million jobs in April. The total number of employees is one of the lowest in the last decade, at 131 million jobs.

The US EIA (Energy Information Administration) published the weekly changes in US crude stocks on Wednesday. The inventory levels increased by 4.59 million barrels against 7.76 million barrels from forecasts. This is the second week since the start of the pandemic, that the actual change is below the forecast level.

What to watch this week

Outlook: Wind generation picked up from yesterday and is expected to remain strong up to Thursday. The LNG sendout is comfortable while 9 LNG cargoes are expected to arrive in the UK over the next weeks. The average temperatures will most likely increase above seasonal normal levels as we progress towards the weekend.

Wednesday May 13: UK Balance of trade reached a deficit of £2.79B in February while market expectations are set at £1.7B deficit for March.

Wednesday May 13: Q1 2020 preliminary growth rate in the UK is expected to contract by 2.4% from the 0.0% of the last quarter of 2019.

Friday May 15: Q1 2020 second growth estimate for the Eurozone economy is forecasted at -3.8%.

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