Risk Management Team Market Update

Market Overview

Forecasts of cold temperatures steadied prices over the main Christmas period, sentiment that was further supported by a lack of wind generation. A strengthening of the Carbon market also impacted the far curve, though by the New Year this was largely offset due to more losses in the Brent crude and coal which saw bulls struggle to keep a foothold in the market.

The colder weather predicted at the end of December failed to materialise, with temperatures remaining above seasonal norm into January. Strong gas flows, multiple LNG deliveries and robust storage levels combined to provide a very positive supply outlook, and power contracts began to drop in line with their gas counterparts.

Prices on the near curve dropped c. £5/MWh from their pre-Christmas levels, and contracts on the far curve also posted losses of around £2/MWh.

Prices continued to fall into this week with high wind generation providing additional assistance to the bears on the near curve. Day-Ahead fell below £40/MWh with Feb-15 and Mar-15 also giving up 15{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b}-20{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b} of their value since December.

This movement filtered down the curve as the oil market continued to collapse (falling towards the $50/barrel mark – down more than 50{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b} since the end of August), with seasonal prices being pulled down 10{f28ba8b7cd80e2a72e2e4b0140ea6524aee5e72b0af8287d84bbf0c79910665b} from their 2014 lows.

As of midweek, Summer-15 fell below £43/MWh, Winter-15 under £47/MWh and Summer-16 to £43.5/MWh. Annual prices as far into the future as 2017 have hit their lowest levels since 2012.

 

Outlook

With Brent crude and gas prices both at five to six year lows and no supply issues on the horizon, the current climate does not suggest that there is a substantial price correction upcoming for the power market.

However, while we have reached unprecedented levels in the wholesale market, Inspired will be closely monitoring prices for the opportunity to make forward hedges at the bottom of the market.