June Market Summary

Transcription

1 June Market Summary Review of Market Trends Report No. 6/2018 Martin Rawlings 6/30/2018 Contents Macro Economics... 2 Oil Market: Brent $78.39/bbl, WTI $73.45/bbl... 4 European Gas Market NBP Price: pence/kwh... 5 UK Electricity Market Average Buy Price: 54.01/MW... 7 Coal Buy Price: 85.26/metric tonne... 8 Carbon Buy Price: 14.99/tonne... 8 News... 9 Versatility is key in a volatile market... 9

2 Macro Economics GBP Closing Rate % Change EUR USD United States Dollar: The dollar index is down a little, as risk sentiment shows some signs of improvement. It s quite a change from yesterday, at which point the dollar index was flirting with a break above its 2018 high as investors ran for cover amid perceived worsening US/China trade relations. Page 2

3 Meanwhile, 3rd estimate Q1 GDP printed weaker than expected at 2% vs. the 2nd estimate result of 2.2%. Although the data was mostly ignored at the time, it s probably not helped the greenback s cause since. Investors may also be keen to take some profit on long dollar positions ahead of the end of the month and quarter, which could feed through in to today. The data docket is looking quite busy too with Personal Spending, Core PCE Price Index, Chicago PMI and Consumer Sentiment all due for release. I anticipate a range in the GBP/USD rate of Euro: EUR/USD was on the back foot for most of yesterday s session as the dollar remained well bid throughout. A series of German state inflation data was released, and if anything, disappointed slightly. The focus for EUR/USD traders yesterday however was the EU Summit. Leaders agreed on an immigration deal whereby EU countries would set up migrant centers on a voluntary basis and restrict movement of asylum seekers between EU states. This helped to support the improvement in risk appetite and ultimately weighed on the dollar. EUR/USD rose back through 1.16 and on to a high of It s settled back to open this morning at German coalition talks begin this weekend which could give us some clues as to Chancellor Merkel s chances of staying on. In the meantime European Flash CPI is due to be released this morning. I anticipate a range in the GBP/EUR rate of Page 3

4 Oil Market: Brent $78.39/bbl, WTI $73.45/bbl UK Energy Markets Report Brent ICE (USD/b) Gasoil ICE (USD/t) Fuel 1% Fob cg (USD/t) Close to close at $77.5 bbl for Brent ICE Crude prices down, Saudi Arabia in focus with estimated production at 10.7 Mbd in June After new highs touched at the end of last week, prices softened over the weekend after the August Brent contract expiration. Brent prices fell significantly and traded briefly below $78/b after a monthly maximum at $79.7/b. WTI holds close to its new 3.5-year highs this morning, going on its own trend, totally decorrelated form Brent. With WTI around $73.5/b, the transatlantic spread fell down to -$6.5/ b this morning after a 4-month high around -$4/b touched last week. The prices downward trend was fuelled by bearish comments from President Trump, rising output from Saudi Arabia and negative Asian figures with the backdrop of trade war and geopolitical tension. Main events: Serial twitter President Trump once again surprised the markets with a statement saying he asked the Saudi Arabian King to raise output +2 Mbd, to make up the difference as prices are too high. The US president added the King agreed (to its order?) but the White House had to officially walk back, saying the King can add 2 Mbd if needed and he was the only one to make such decision The statement says King Salman affirmed that the Kingdom maintains a two million barrel per day spare capacity, which it will prudently use if and when necessary to ensure market balance". KSA is supposed to have a maximum sustainable capacity of 12 Mbd but has never tested that level of production. With a target at 11 Mbd for July, the Kingdom theoretically keeps 1 Mbd of spare production but no one knows if it really exists, and surely not Trump The Trump administration has been pushing hard for OPEC and friends to boost production before Iranian volumes are taken of the markets in order to keep them balanced. Page 4

5 According to first figures from June, Saudi production could have reached 10.7 Mbd last month (previous high for Saudi output is Mbd in November 2016), close to a record high, far above its production quota and well enough to offset production disruptions. That is +700 kbd compared to May and it is a clear sign Saudis want to moderate prices. Such a move surprised all stakeholders from the OPEC+ group by its amplitude and Iran especially has been infuriated. Poor figures from Japan early this morning are the lasts from a negative series including China and South Korea recently. Economic slowdown risks are adding to concerns over demand destruction linked to higher prices for the first oil buying zone. American drillers reduced the oil rig fleet in US with -4 last week, taking the total of active rigs to 858. Outlook: Fed minutes and job market figures for US will be the milestone for market beginning midweek but there is no planned event for oil this week. The downward trend could continue and actual June figures for OPEC and especially Saudi Arabia will be released today and could push prices lower. Today, Brent could fall back towards the $77.5/b support zone. European Gas Market NBP Price: pence/kwh Day Ahead (p/therm) July 2018 (p/therm) Winter 2018 (p/therm) Page 5

6 Close to close at p/kWh for TTF CAL 19 UK Gas prices have continued to climb during the previous week and have risen to monthly highs not seen since 27th May. The UK continues to swelter in significantly warmer temperatures, with 5 consecutive days reaching 30 C. The domestic gas consumption has drastically reduced remaining below seasonal normal, however prompt and near curve contracts have held strength due to an increased load on gas burn to generate electricity for air conditioning. The market has kicked up on the back of strength across all energy and commodity markets with Oil, Coal and Carbon emissions all rising this week. Oil prices firmed to a 4 year high following an OPEC meeting in Vienna. It was widely expected that an extra 1 million barrels a day would be produced by OPEC nations, however it seems this figure is unlikely with the US sanctions on Iran. Over the last two days the market has risen further to $78.13 due to supply outages in Libya due to an armed standoff. The US grade has seen strength to $74 as US domestic supply has reduced. Coal prices continue to climb, reaching above $90bbl, up from $85 in recent days. This has been driven by increased demand to electricity as Europe swelters in a heatwave. Temperatures in the South of France are expected to hit 40 C in the coming week. This is consistent with well above seasonal normal temperatures in Germany, Netherlands, France, Italy and Spain. Carbon prices have risen from 14 to price back above which has helped contribute to further gains on the curve. The IUK pipeline that was out of service due to maintenance returned to action on Thursday last week and immediately exported ~40mcm to the continent. UK storage levels have increased fro, 14% to 37% during the outage. All in all, prices have been bullish for the week, helping prices increase across all parts of the UK curve Outlook What specifically affected prices in the past month? Bullish factors (upward pressure) Oil Prices Up Coal Prices strengthen Carbon Emissions Climb European Gas Maintenance Bearish factors (downward pressure) Warm Weather Low Gas Demand UK Storage levels Page 6

7 UK Electricity Market Average Buy Price: 54.01/MW Day Ahead (p/kwh) July 2018 (p/kwh) Q (p/kwh) Winter 2018 (p/kwh) Summer 2019 (p/kwh) July Close to close at EUR/MWh for German power CAL 19 Forward power prices extended gains on bullish fuel costs European spot power prices increased on expectations of a drop in wind output. As for curve prices, they extended their gains, supported by clean coal and gas costs which increased despite slightly lower EUA prices which failed to break above their 20-day average. Cal 2019 baseload prices increased by 0.58%, closing at 43.39/MWh. French Cal 2019 baseload prices increased by 0.88%, closing at 48.25/MWh. Coal API2 Cal 2019 prices were up by 2.01%, closing at $89.46/t. EUA Dec 18 prices dropped to 14.99/t at the close (-0.07%). Outlook What specifically affected prices in the past month? Bullish factors (upward pressure) Oil Prices Up Coal Prices strengthen Carbon Emissions Climb Page 7

8 European Gas Maintenance Bearish factors (downward pressure) Warm Weather Prices overvalued Profit taking Coal Buy Price: 85.26/metric tonne Carbon Buy Price: 14.99/tonne Page 8

9 News Versatility is key in a volatile market Recently, there s been a real focus on non-commodity energy costs, as they are rising so dramatically that they re set to make up around 60% of a business energy bill by Meanwhile, commodity costs have also been increasing substantially Commodity costs are difficult to manage; there are so many different factors that can influence prices that it s impossible to accurately predict whether the market will go up or down. However, organisations can ensure that they re protected against the increasingly common price spikes in the market and can take advantage when prices fall by taking a more flexible approach to procurement. Climbing costs The price of Brent oil has been rising for a while costs have jumped over 60 per cent in the past year, due to rising demand and the restricted supply from the Organization of the Petroleum Exporting Countries (OPEC). Two weeks ago, after the US pulled out of the Iran nuclear deal, oil prices rose to levels not seen since 2014, at over $80 a barrel. When oil prices spike, it has a domino effect on gas and electricity prices. After the spike in early May 2018, winter 2018 prices for gas and electricity reached 60.65pptherm and 58.40/MW respectively. Other factors are influencing gas and electricity prices too. For example, where gas storage is concerned, we currently have limited capacity in the UK because of the closure of the Rough facility, and, in addition, we re beginning to see the effects of the summer maintenance schedule on supply and unplanned outages are making the task of restocking storage facilities increasingly difficult. It s not just the UK that s experiencing supply shortages either gas storage facilities in Europe are at a 10-year low, which is prompting concerns that they won t have the time or the available supply to restock ahead of winter 2018/19. In addition, maintenance at the Hunterston nuclear reactor unearthed cracks in the reactor core, meaning the reactor was offline for six months. Looking ahead When commodity costs are high, it s understandable that many businesses opt for a fixed energy procurement strategy, so they re protected if prices continue to rise. At this moment in time, it s likely that commodity costs will increase further over the short to medium term but if prices fall in the future, those locked into fixed contracts could find that they re paying more than they need to for their energy. It s not inconceivable that commodity costs could fall gas storage levels in the UK are recovering somewhat, and we are seeing record summer flows from Russia into Europe. The volume of gas flowing into Europe from Russia could also increase substantially once the Nord Stream 2 pipeline opens in US gas production is still higher than the increased demand, and it s possible that the Iranian supply will remain in the global marketplace if all the other world powers remain committed despite the USA s exit from the nuclear deal. A flexible future Page 9

10 UK Energy Markets Report There s such a wide range of factors that influence commodity costs that it s impossible to accurately predict whether they will rise or fall in the future with total certainty, and that s why it pays to take a flexible approach to energy procurement. As you make multiple market-reflective buying decisions throughout the duration of a flexible contract, you can take advantage of the ever-changing market by buying when prices are low. Of course, you also run the risk of buying in a bullish market and paying more, but if you have an effective management strategy in place that allows you to re-expose (unlock) volume back to the market you should be able to mitigate this risk. Terminology All oil prices: in US dollar Oil product: Brent crude or West Texas Intermediary (WTI) Mb/d Million Barrels per day. Freight rates: US dollar per tonne. Natural gas prices quoted as pence per therm. Power prices quoted as Pounds Sterling per MWh. CO2 market: EURO Information & Data Sources 1. Total Gas & Power 2. GdF Suez 3. Haven Power 4. EIA 5. Forex 6. ICIS Disclaimer This material is intended for information purposes only. It does not constitute an independent investment research, a personal recommendation or other general recommendation relating to transactions in financial instruments or an investment advice. This material is intended for general distribution, it does not take into account any specific investment objectives, financial situation or particular needs of any recipient. It cannot be transmitted to any other person without the prior written consent of Martin Rawlings. The information contained herein, including any expression of opinion, is not intended to constitute an offer or a solicitation to buy or sell any financial instruments, products or services, an investment research or an investment recommendation or other financial, investment, legal, tax or accounting advice or any other advice. Further, all information contained herein has been obtained from and/or is based upon sources believed to be reliable is deemed to be clear, fair and not misleading but cannot be guaranteed as to accuracy or completeness. The views and opinions, forecasts, assumptions, estimates and target prices reflected in this material are as of the date indicated and are subject to change at any time without prior notice. The figures that may refer to past performance herein are in no instance an indication of future valuations or future performance. Martin Rawlings is under no obligation to disclose or to take account of this document when advising or dealing with or for its customers. Martin Rawlings nor any other person accept any liability to anyone for any direct, indirect, special, incidental, consequential, punitive or exemplary damages (including, but not limited to, lost profits) arising from the use and dissemination of this material or the information contained herein. Page 10

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