Morning Market Update 1/6/20

A bearish start to the week with the UK gas system well supplied this morning. Little fundamental change elsewhere.

Temperatures remain warm up to the weekend where we expect to see a dip towards and possibly below seasonal normal levels. With the cooler weather comes some healthy wind generation, which has been confirmed and is perhaps now looking a little higher than originally forecast for the weekend, likely to bring with it some bearish, possibly negative prices for the Saturday and Sunday contracts. Wind today is just under 2GW, seeing CCGT drop below 10GW. There is additional support for the stack from the interconnectors – all five currently importing.

Oil is trading at $37.67/bbl, continuing its revival. There was a slight drop in rig count over the weekend but only by 15, not enough to add any significant upside. The US having maintained there agreements for phase one of the US China deal has given some confidence to the market as well, although the US is removing some agreements associated with Hong Kong. Coal has moved downwards, below the $52/tonne mark, which has been a strong support level for the contract but now provides some resistance. A slight decrease in auction allowances for carbon has seen the contract edge up, that coupled with the European recovery plans amid the pandemic; lifting EUAs to €21.56/tCO2e.

The UK gas system is well supplied today, 24mcm long. A reduction in IUK exports, with capacity constrained to 29mcm as well as low levels of industrial power and domestic demand sit behind the system length. We are expecting to see demand pick up into the second half of the week, in line with a decrease in temperatures, this could provide some slight upside before the high winds hit us at the weekend.