Bullish trading in the carbon markets added to the upside in NBP futures

16 December 2020

 Gas futures averaged gains of around 0.80p yesterday

Bullish trading in the carbon markets added to the upside in NBP futures on Tuesday. The market has already been inflated by concerns of increases in Asian LNG prices and fears that LNG supplies could be diverted away from Europe to Asia. The remaining winter months have added around 8.00p or roughly 19% over the last week in response to rising LNG prices there. Carbon EUAs gained almost 4.0% yesterday adding to the volatility in the gas market. While gas futures averaged gains of around 0.80p yesterday, prompt prices eased as increased wind generation is expected to take some pressure off the demand side for the remainder of the week, but temperatures are forecast to rise into Christmas week.  

Strong rise in Carbon EUAs along with higher gas and crude oil prices fed into the baseload power futures market

The strong rise in Carbon EUAs along with higher gas and crude oil prices fed into the baseload power futures market on Tuesday. Futures rose by an average of £0.45/MWh yesterday as carbon contracts added €1.17 per tonne following some bullish trading after the UK government announced it is to proceed with its own domestic trading scheme, UK ETS in January. Forecasts for higher wind generation for the remainder of the week pressured the power prompt yesterday and the day ahead product eased marginally. Wind generation is forecast to average around 9.0GW for Thursday and Friday and get up to 12.0GW today.  

The slump in crude oil demand was still over-looked yesterday

The slump in crude oil demand was still over-looked yesterday as the markets see the vaccine roll-out as the cure leading to a strong recovery in crude oil demand. With Covid-19 vaccines getting approval in more territories its hoped that demand will step up sooner although in the short-term demand is likely to slump further. In the U.S., high demand states like California have a stay-at-home order while New York is also considering a reintroduction of lockdowns. In Europe, more countries have reinstated restrictions as concerns around the spread of the virus during the Christmas holiday period heighten. Brent settled 47 cents up yesterday while WTI added 63 cents a barrel.  

Both Brent and West Texas have gained around 20 cent a barrel this morning

With UK gas demand some 20MCM down on yesterday’s levels increased wind generation has taken some of the pressure off gas supplies. The system is comfortable and operating with forecasted surplus of 8MCM. The prompt has reacted with modest declines to the spot and day ahead products. On the curve, early losses have been partially retraced, and the front months is 0.42p down while the summer contract is 0.25p lower. Sterling has recovered a touch this morning on hopes of a Brexit deal over the coming days. Both Brent and West Texas have gained around 20 cent a barrel this morning as the markets await the latest U.S. inventory report from the E.I.A. later today.