26/09/2022 - Weekly Wholesale Market Update

This morning, the Electric wholesale (Day Ahead) prices have opened up 22.27% lower than this time last week with Gas (Day Ahead) 26.92% lower.

It's been a crazy week! From the government finally disclosing more information about its assistance for energy contracts with businesses to Russia intensifying its military operations in Ukraine with "partial" mobilisation and nuclear threats. As the market once more attempted to process unexpected news, wholesale markets were volatile, with positions varying quickly from being in the red to the green and back again during each day. For Oct-12m contracts, the week concluded on an overall positive note, with gas rising 2.61% and the power equivalent rising 12.29%. Due to the situation in Ukraine and the weaker pound, gains were especially strong on Thursday and Friday.

If the bullish trend continues, we can anticipate that the moving average will cross either today or tomorrow as upward momentum pulls prices back toward it. However, there is no guarantee of gains as the market is still in transition: Denmark said it will increase electricity exports to Norway starting at the end of this week to assist the country replenish its hydropower stocks. If Norway withdraws gas supplies this winter to defend domestic interests, the UK would be left unprotected. Fears of a recession have caused Brent to trade at an eight-month low and Carbon to trade at a six-month low; UK carbon is still trading at a premium to its European counterpart because of structural tightness. As conversations about selling off allowances spread across the continent, European carbon emissions could still decline.

In related news, the pound hit a record low against the dollar on Friday after the new prime minister's "mini-budget," dropping 4.7% to $1.035. The movements in gilt markets (a type of government bond) have been greater than those that followed the financial crisis, Brexit, Covid, or anything the Bank of England has announced over the past three decades - a key indicator that markets are becoming extremely concerned with UK macroeconomic policy. Financial markets have not reacted well to the announcement. Given that the current account deficit is expected to average 8% of GDP in 2022 and 2023—a level that has only ever been exceeded three times in British history—the UK may be on the verge of a balance of payments catastrophe. The chancellor's budget contains numerous measures intended to "boost investment and growth" in the UK, but only time will tell if the bet pays out.

Markets appear gloomy this morning, with the Oct. 22 NBP stepping down 12.76% (36.575p/th) and a Nov. 22 contract offered at a 17p/th discount (though positions could flip by the afternoon as has been the case the previous week). There isn't much action on the electricity market, but Dutch TTF front-month steps are 1.05% lower than they were recently. The NTS is 8 mcm short as an unanticipated outage caused by a process issue at Oseberg drains 7 mcm/d of availability. This week will have stable, albeit slightly below average, temperatures with significant wind output that will eventually decline.

How the market has opened each day:

7 day averages

Electric (£ per MWh) 233.15

Gas (pence per therm) 230.02

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

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