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03/04/2023 - Weekly Wholesale Market Update

Updated: May 2, 2023




Market Review


Supply shortage risks have been supporting Brent last week, the front-month crude contract increased by 6.4%, closing at $79.77, just below that $80 support threshold. In recent times, we have seen Russia reduce their output by 500,000 bpd, supply from Iraq’s Kurdistan region has been temporarily suspended, reducing global supply by a further 450,000 bpd, and now OPEC+ has announced that it will cut supply by a further 500,000 bpd in May.

Equities have experienced strong growth last week, with the S&P 500 riding the banking bail-outs and increasing oil prices. The benchmark equity posted a 3.48% gain week-on week, settling at $4109, just shy of the symbolic $4200 threshold. The announcement from OPEC+ will most likely lend further support to the equity, continuing the bullish run.



UK Supply and Demand Dynamics


UK wholesale power prices found support towards the end of the winter season, with the front-month power contract gaining approximately 10% week-on-week, settling at 117.07 £/MWh. With temperatures set to drop in the first week of April, demand is expected to increase and support prices further.


Gas markets saw a similar bullish push, with the front-month UK gas contract gaining 17.2% to 118.03 p/therm. The cold at the start of April will likely increase heating demand, and with injections beginning shortly, it is expected that prices will receive some support as gas is taken off the market. The day-ahead market also adjusted to reflect the upcoming demand uptick, posting 21.1% growth over the course of the week to 116.0 p/therm.



Leading European Gas and Power Markets


European power, similar to the UK markets, saw prices increasing as the winter season drew to a close. The benchmark front-month German power contract saw a week-on-week increase of 8.7% putting it at 110.63 €/MWh, while the analogous French contract saw only a 1.1% increase, as the market is pricing the nuclear fleet risk into the front-year contract.


In Gas markets, the benchmark Dutch front month contract gained 16.4%, settling at 47.84 €/MWh. Still within the range it fluctuated at previously, albeit now with an upwards rather than downwards trajectory. Injections as well as colder weather, similarly to the UK, will likely act bullishly on the prices in the coming days. There is a concern, however, that demand will be too high to fill storage effectively.



Outlook


As the winter season draws to a close, prices began recovering from multi-week lows as an Arctic airmass visits Europe. With some supply going towards storage with the beginning of injections, as well as increased demand due to the colder weather we will likely see fundamentals turn bullish for the time being. Additionally, with wind generation falling off, power will also feel further upwards pressure. Luckily, this cold snap will be short lived and according to forecasts will not extend into next week.


  • Coal saw a 13% weekon-week gain, as the commodity is supported by the upcoming shift to colder temperatures, as well as decreased wind generation across the UK and Europe. Temperatures are meant to stabilize going into next week, so gains will likely be capped.

  • With injections well underway, as well as colder weather approaching, we will likely see increased volatility in the coming days. Higher demand will make filling storage less effective, and thus we will likely see prices grow to compensate.

  • Equities have been riding the fallout of the banking crisis as well as the recent oil supply risks, with the S&P posting an approx. 3.5% gain to $4109. With oil showing so much potential upside, it is likely that equities will follow suit with the growing revenues of oil and gas firms.

  • EUA carbon saw some significant gains towards the end of last week, with an approx. 5% increase over the week to €91.83. It is likely that investors were taking advantage of the lower prices and began purchasing the allowances ahead of the next compliance season.

  • Due to the multitude of supply cuts, oil will see strong support over the coming days. In the last few days, 1.45 MMbpd has been forecasted to be removed from the market, and additionally the US plans of filling its reserves in the near-future. Most analysts predict the ceiling to be around $95 per barrel.



How the market has opened each day:

DAY AHEAD PRICES

Gas (pence per therm)

Electric (£ per MWh)

27/03/2023

103.25

111.50

28/03/2023

101.00

106.00

29/03/2023

104.00

103.00

30/03/2023

105.95

111.75

31/03/2023

116.00

115.00

03/04/2023

122.00

125.00


7 day averages


Gas (pence per therm) 108.70

Electric (£ per MWh) 112.04





 


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