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WEEKLY ENERGY MARKET REPORT: 9th DECEMBER 2019

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 British wholesale power market has moved on the downside during the last week as strong renewables generation cancelled out any bullish signals the low temperatures might have had on prices. Month-ahead moved by 6% lower on a weekly basis, before settling at £46.75/MWh, thus also reflecting the lower reliance on gas for power generation during most days.

The natural gas market followed the same movement to that of power. Month-ahead dropped by more than 8% within-week and closed the week at 38.00p/th. The influx of LNG flows to the UK provided strong supply flows while the LNG terminals make room for the new arrivals by releasing gas flows consistently into the system.

In the overall energy commodity complex, oil pries rose by more than 2% between Wednesday and Friday, following the OPEC+ meeting in Vienna last week. The Organization of the Petroleum Exporting Countries and its allies decided to further deepen the oil production cuts by an additional 500,000 bpd on top of the existing 1.2m bpd reductions for Q1 2020.

The UK energy market last week

  • British wholesale power prices softened by 2% on the curve contracts last week, on average. Healthy renewables prevailed, in terms of price impact, against any upside signal from the cold weather observed in the UK and the Continent.
  • The natural gas market followed suite as the surplus of LNG flooded the demand system.
  • Oil prices rose on the back of the additional supply cuts agreed in the OPEC meetings on Thursday and Friday last week. Currently, oil benchmark Brent Crude oil is priced at $63.85.

UK Natural Gas prices

The UK natural gas market was well supplied over the last couple of weeks and is likely to continue that way as long as we see an influx of LNG and stable flows from Norway. On top of that, the mild weather outlook for the week ahead contributed to a further softening in prices with the month-ahead dropping by 5% between Wednesday and Friday last week.

Day-ahead closed the week at 33.25p/th, a drop of 15% week-on-week, while month-ahead decreased by 8.2% within-week before settling at 38.00p/th.

In terms of curve contracts, Sum-20 dropped by 8% before settling at 33.98p/th while Win-20 decreased by 3.3% at 45.70p/th.

UK Electricity Prices

Wholesale power prices in the UK dropped as wind generation contributed more than 20% to the power generation mix consistently during most days of the previous week.

Day-ahead dropped by 14.8% and closed on Friday at £40.25/MWh while month-ahead fell by 6% before settling at £45.70/MWh.

Sum-20 settled at £42.30/MWh and Win-20 at £50.34/MWh, a downwards movement for both contracts by 2.9% and 1.8% respectively.

Macroeconomics

The US non-farm payrolls revealed an increase of 266,000 jobs in the USA in November and easily exceeded the 180,000 of market expectations. Health care, professional and technical services were among the biggest gainers.

The Pound is currently priced at the highest level since May 2017 against the Euro, at €1.19 and at a 7-month high against the US Dollar, at $1.31. The major driver behind the bullishness of the Pound is the upcoming general election. The UK election is scheduled for this week and the latest polls suggest a clean Conservative majority, although this isn’t certain. A majority government will indicate to the markets a reduced level of uncertainty especially around key issues such as Brexit.

what to watch this week

Outlook:

7 LNG tankers are expected to arrive in the UK terminals this week thus keeping the level of supply at a very comfortable level.  The weather outlook looks mild and wet while wind generation started strong for another week and is expected to remain at similar levels until the end of the week.

Wednesday 11th November:  The YoY US inflation rate for November will be published. October’s rate came up to 1.8% while market expectations for November are set to 1.9%.

Thursday 12th November:  The UK general election will take place on Thursday.

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