Risk Management Team Market Update

Market Overview

The spot product opened this week £1.50/MWh higher than its Friday settlement as EdF’s Dungeness B-21 Nuclear reactor fell off the grid again which combined with the cooler temperatures to lift demand. Tuesday’s session saw the bears return with the contract shedding close to 10{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b} from Monday’s morning level and falling to £43.50/MWh, as supply easily outstripped demand due to the high wind output. This was despite the continued Dungeness B-21 outage and EdF’s Sizewell-1 reactor return date was also pushed back.
As the week progressed the continued high wind output, fuelled by the apparent “Weather Bomb” which hit the UK’s shores saw the spot price remain comfortably below £45.00/MWh.
During Monday’s session the Jan-14 product ignored bullish pressure from the spot market and instead fell below £47.00/MWh. This was reflective of the weaker equivalent gas contract as further scheduled LNG deliveries were announced and gas storage levels remain high.
As we progressed through the week we saw a continuation of this trend with the product falling below £46.00/MWh during Thursday’s session as SSE announced that Ferrybridge Unit 4 was expected to return in early January which further eased supply side concerns
The seasonal contracts traded flat to soft during Monday and Tuesday’s sessions, buffeted between the weaker fuel complex as Brent Crude and Carbon both posted losses and the stronger spot market. The longer term products moved up a touch on Wednesday’s session on the back of thin liquidity and a mixed fuel complex with carbon and coal finding some support.
Thursday saw the return of the bearish trend with Brent crude changing hands below $64/bbl which dragged longer dated UK gas products lower. Accordingly S-15 and W15 power were trading at £47.30/MWh and £51.45/MWh which was £0.25/MWh below last Friday’s settlement.
The near curve rose slightly on Friday with news that the return date of Dungeness B reactor was pushed back to January. A colder weather forecast and reduced wind generation provided additional support, however movement was minimal – front month gained only 10p/MWh to £46.10/MWh.
Brent crude oil dropped further (c.$62/barrel) following the recent OPEC announcement suggesting world demand for oil will fall further in 2015.
Another LNG tanker is also scheduled to dock on Sunday contributing to a healthy supply outlook for Winter and easing any demand fears. Both factors have meant that prices on the far curve remained relatively steady in the face of minor short term demand issues, Summer-15 and Winter-15 climbing just 20p/MWh to £47.50 and £51.70/MWh respectively

Outlook..

Inspired view remains bearish on the shorter dated products providing that the nuclear outages at Dungeness and Sizewell do not consistently get pushed back. Once these return then the supply side picture is likely to become even more comfortable and weigh on spot and front month products.
The seasonal products are also likely to come under pressure should oil continue to tumble as this will drag the equivalent UK contract lower. One caveat however is if the Sterling weakens against the Euro and US Dollar then this could increase the cost of generating power due to the forex relationship.

The Risk Management Team
T: 01772 689 250