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WEEKLY ENERGY MARKET REPORT: 24th February 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.

British wholesale power prices have fallen throughout the previous week by more than 3.5% on the front-season contracts, whereas the prompt pricing closed the week almost flat. Power prices mirrored the natural gas price movement as more LNG supplies were redirected to Europe following the coronavirus outbreak.

Two weeks earlier, the wholesale markets in North West Europe experienced a rapid uplift despite no major changes in fundamentals. The steep increase was attributed in the rally in carbon and oil markets that was spread across the curve products. Since then, prices have retreated and currently priced in levels we had seen before the spike and during early February.

As was the case with Storm Ciara two weeks ago, Storm Dennis and its high winds, during the previous weekend, have prevented many LNG tankers from docking in UK ports. However, as wind pressure became subdued the following days, we have seen LNG count increasing to 21 tankers for February, which is very close to January levels, with 22 tankers having arrived in the UK during the first month of the year.

Brent Crude prices surged by almost 3% to $59.30/bb in Thursday on the back of reports showing a falling number of coronavirus cases. However, as of the last two days, the number of reported infections outside of China (e.g. Italy, Iran and South Korea) rose considerably and resulted in extended losses in global shares as well as in crude pricing. The Oil benchmark, Brent Crude, plummeted this morning by more than 3.5% and currently priced at $56.25/bbl.

The UK energy market last week:

  • UK natural gas prices started last week on the front foot as LNG tankers were unable to dock due to high winds, thus causing tightness in the natural gas system. Nonetheless, as the week progressed, LNG send out increased along with reliance on Norwegian imports.
  • Power fundamentals remain strong in the last couple of weeks with wind generation remaining comfortable at 10GW.
  • Oil prices dropped 3% since Friday as the concerns over the coronavirus weighed on prices. Oil benchmark, Brent Crude, is currently trading at $56.25/bbl.

UK Natural Gas prices:  

Natural gas prices started firmer as strong winds caused problems to 7 LNG cargoes from docking to the UK. However, as wind pressure eased off, the LNG send out increased to nearly 60% for each of the three LNG terminals.

In terms of price movement, month-ahead prices closed the week flat at 22.68p/th. Sum-20 and Win-20 settled at 23.73p/th and 36.55p/th, a decrease of 3.6% and 4.5% respectively.

UK Electricity Prices:

UK power prices spiked at the start of the previous week despite the strong renewable output provided by Storm Dennis, with 12-14 GW of wind contribution to the power generation mix. Imports through the interconnectors remained strong during most days of the week and provided additional flows to the overall stack.

Month-ahead contracts increased by 1.9% within-week to £33.25/MWh while Sum-20 and Win-20 dropped by 0.6% and 2.3% and settled at £34.50/MWh and £44.05/MWh respectively.

Macroeconomics:

The Pound keeps changing hands at €1.20 amid the ongoing trade negotiations between the EU and the UK. The cabinet reshuffle as implemented by the UK Prime Minister added further strength to the Pound.

UK’s YoY inflation rate for January has increased to its highest level in six months, at 1.8%, and above market expectations of 1.6%. Transport prices, namely airfares as well as fuel prices have boosted inflation levels in the UK. European share price indices have fallen significantly this morning following recent reports for more coronavirus cases outside of China, namely Italy, Iran and South Korea.  The German market index, DAX, dropped by 4% within a day and by more than 5.3% within a week.

What to watch this week

Outlook:  High winds are expected to continue this week, therefore reliance on gas-fired generation is most likely to decrease. Due to the high winds, several tankers did not dock to the UK the previous days. If they can all get through, we might end up having ten LNG cargoes arriving to the UK in the next four days. On weather fundamentals, no major cold spell is expected until the end of the week with a milder outlook most likely to occur at the weekend.

Business Confidence Index, 27th February. EA’s (Euro Area) Business Confidence index for February will be announced.

Consumer Confidence Index, 28th February. UK’s Gfk Consumer Confidence for February will be announced.

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