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27/06/2022 - Weekly Wholesale Market Update

Updated: Jun 28, 2022

This morning, the Electric wholesale (Day Ahead) prices have opened up 27.94% lower than this time last week with Gas (Day Ahead) decreasing by 7.98%.


Oil prices dropped as a result of the Fed's aggressive stance on inflation and the rise in interest rates. After the EU oil sanctions were imposed and dealers took a backseat, undersupply seemed to have vanished. Supplies have been redirected; they have not disappeared. Russia's oil is heavily purchased by China and India, which has put pressure on an overbought contract. Midway through the week, the selloff reached a 5-week low, but the week ended flat.


Out of the contracts for oil, coal, and carbon, coal witnessed the only increase on the first week. The Germans start stockpiling dirty coal at the start of the week as they rely on the fuel to bolster their supplies and make sure they can keep the lights on this winter. China has continuing to do so, but reports indicate that they are purchasing goods of poorer calibre. On Friday, trading in equities was more active as the week came to an end.


As renewable energy sources were not given a place at the table last week, gas continued to dominate the generation stack at close to 60%. Out of the six LNG cargoes on the way, five docked and delivered more than 500 mcm of gas, raising the stock level to 99 percent. Exports from IUK and BBL are kept up and continue to the EU and mainland.


Gas in the UK appears to be in good shape overall, with the exception of a few days that started the week with initial shortfalls. As the month draws to a close and we move into July, SPOT prices and the front month started to align. Forward gas lost 32p/th over the past week. Power prices are less responsive and have decreased by £6/MW. As we enter Q3, W22 costs for gas and electricity are rising as well, due to concerns that NS1 won't operate at full capacity until the repair period is through.


Concerns over the gas supply continue to plague the EU. The IEA has issued stern warnings about the unreliability of gas supplies from Russia for this coming winter, and when reality set in, prices firmed. Despite the decline in flows from NS1, stocks reached 55% full last week. Germany upgraded its preparedness for emergencies to level 2. Prices will increase for supply customers in an effort to force them to self-ration since prices make usage unaffordable.


In the upcoming Cal Yr contracts and the front month, both EU Power and Gas saw increases. Gas TTF prices witnessed the highest increases, and German power hikes surpassed those of France. Due to a severe lack of wind in the mix, Germany achieved the greatest gains on the spot market. As the contract traded sideways and closed exactly €1/t lower than when it opened, Germany's switch to coal had little effect on carbon pricing over the course of the week.


OUTLOOK


The Russian/Ukraine situation is the main topic of discussion at this week's G7 summit. Realizing that the economic picture for Europe, particularly Germany, becomes challenging without Russian energy, particularly natural gas this winter. The CEOs of the two largest French energy companies, Total and Engie, published an open letter in the Sunday Journal over the weekend urging industry and French consumers to cut back on energy use in anticipation of a harsh winter. France continues to experience concerns with its nuclear power fleet in addition to the gas problems. Several days ago, Germany moved to stage 2 of its energy management plan as a result of Russia restricting natural gas deliveries through Nord Stream 1. This letter is now being sent.


Europe's coal prices are still rising as gas prices rise.

Even with freight transportation rates being restricted, the German government's suggestion that coal use could be increased this winter to keep the lights on has helped to support European prices. Similar to how it does with oil, India is moving to buy any discounted Russian coal.


The price of LNG has increased significantly in recent weeks, partly as a result of pricing from European hubs and due to an increase in demand during the cooling season in Asia. Japan has appealed for demand moderation as predictions indicate that today will be a pressure point. The future appears to be extremely well supported.


This week, the equity markets might find some support heading into the next quarter. A near 3 percent increase in valuations on Friday last week put a stop to two weeks of declines across many major indices. While the US and UK are likely to release their Q1 GDP adjustments after the G7 conference, these revisions are not anticipated to differ significantly.


This week's market volatility is anticipated as the July and Q3 forward contracts come to an end and the natural gas forecast becomes less definite.

The UK's prediction for renewable energy (wind) this week is better, at or near seasonal averages, while Germany's output remains significantly lower.


With both contract expiration and the G7 meeting this week, Brent's slip down to the lower half of recent ranges is probably a sign of some upside. Even while there is some evidence that supply issues in EU countries are becoming more serious, the rhetoric from the G7 conference is expected to be positive.


How the market has opened each day:


Date Electric (£/MWh) Gas (p/therm)

20/06/2022 215.10 164.10

21/06/2022 207.10 201.10

22/06/2022 225.25 189.10

23/06/2022 186.10 178.10

24/06/2022 173.10 155.10

27/06/2022 155.00 151.00


7 day averages


Electric (£ per MWh) 193.61

Gas (pence per therm) 173.08


The below shows how the market compares to the previous week, month and year.




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