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Energy Wholesale Market Review, 19 October 2018

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This week, all commodity prices fell for a second week, with EU ETS carbon hitting a two-month low and Brent crude oil dropping below $80.0/bl. Despite pressure from falling commodity prices, near-term wholesale power and gas prices reversed the previous week’s decline and rose. All baseload and peak power contracts to summer 19 rose this week, as reduced wind output and lower temperatures tightened supply and demand fundamentals. In contrast, seasonal power contracts past winter 19 fell, following commodity markets down. The majority of gas contracts rose week-on-week, with summer 21 the exception. Day-ahead gas increased 5.0% to end the week at 68.0p/th, as temperatures are forecast to remain below seasonal normal levels. This was despite many LNG deliveries to the UK as high prices have incentivised cargoes to come to Europe. The weekly average Brent crude oil price fell for a second week, dropping 3.3% to average $80.4/bl, down from $83.1/bl last week. Prices fell below $80.0/bl on 15 October as Saudi Arabia announced it would increase production in November, despite geopolitical tensions between it and the US creating some volatility. API 2 coal also fell for the second week, down 0.2% to average $96.5/t. Although prices dropped to $95.3/t on 17 October, coal prices recovered to end the week up at $99.3/t. EU ETS carbon prices fell 7.3% to average €19.1/t, remaining below €20.0/t throughout the week. Prices dropped to a two-month low of €17.9/t on 16 October amid uncertainty over the effects of a no-deal Brexit on the EU ETS.

Baseload electricity
Day-ahead power rose 0.8% to £64.4/MWh. Prices peaked at £66.9/MWh on 16 October as low wind generation was forecast the following day. November and December 18 power both gained 1.2% to £68.1/MWh and £69.1/MWh, respectively.		Annual April 19 power decreased 0.4% to £60.4/MWh. The contract is £2.6/MWh (4.2%) lower than the same period last month, and 41.1% above the same time last year when it was £42.8/MWh.
Forward curve comparison		Annual October Contract

Peak electricity
Day-ahead peak power increased 0.7% week-on-week to £68.5/MWh. This was £4.1/MWh above its baseload counterpart. Month-ahead peak power went up 1.1% to end the week at £75.8/MWh, £7.7/MWh above its baseload counterpart.		Week-on-week, annual April 19 peak power went down 0.5% to £66.1/MWh. The contract is £5.7/MWh above its baseload power counterpart. The contract was 0.5% below its price last month (£69.1/MWh) and 35.5% higher than its value last year (£48.8/MWh).
Forward curve comparison		Annual October Contract

Seasonal power prices
Seasonal baseload power contracts		Seasonal baseload power curve
Seasonal contracts were down 1.1% on average. Summer 19 power was an exception, rising 0.1% to £58.0/MWh. Winter 19 power was down 0.8% to £62.9/MWh.		Most seasonal peak power contracts decreased this week, down 1.1% on average. Prices reversed an increase in gas prices, with seasonal gas prices up 0.3% on average.

Commodity price movements
Oil and Coal		Carbon
The weekly average Brent crude oil price fell 3.3% to average $80.4/bl, down from $83.1/bl. Prices fell below $80.0/bl on 15 October as Saudi Arabia announced it would increase production in November, despite geopolitical tensions between it and the US creating some volatility. Prices have remained below $80.5/bl since 17 October following a larger than expected rise in US crude stocks the previous week. API 2 coal fell for the second week, down 0.2% to average $96.5/t this week. Although prices dropped to $95.3/t on 17 October, coal prices recovered to end the week up at $99.3/t as strong demand for coal in Europe continues.		EU ETS carbon prices fell 7.3% to average €19.1/t, remaining below €20.0/t throughout the week. Prices dropped to a two-month low of €17.9/t on 16 October amid uncertainty over the effects of a no-deal Brexit on the EU ETS. Continued uncertainty over the UK’s carbon pricing policy post-Brexit, and forecasts of near seasonal normal temperatures could see carbon prices remain near $20.0/t. Reuters has revised its EUA price forecast, increasing the average price between 2019-30 up €1.0/t to €23.0/t, peaking at €25.0/t in 2020 as the Market Stability Reserve holds back 24% of the market surplus from auctions.

Wholesale price snapshot