The recent, bullish energy market narrative, underpinned by cold weather and low winds, reversed sharply last week amid surprise forecasts for milder and windier conditions. The weather outlook precipitated a significant fall in shortend U.K. power prices, with the recent, and intense, pressure on the power grid due to subside.
The energy market fundamentals met negative growth prospects from the renewed lockdown measures to weigh on seasonal power futures. The prospect of a double-dip recession seems highly likely with the Bank of England forecasting negative growth for Q4-21 and Q1-21.
The U.K. front month gas contract reached its highest level since 2008 on Tuesday after arctic temperatures coincided with low wind generation. However, a gas market rout proceeded midweek as U.K. temperature forecasts were revised sharply upwards and Asian LNG spot prices tumbled.
The spell of below-average temperatures in the U.K. has, however, had a lasting effect, with Britain’s medium-term storage depleted to levels not normally seen until February.
With technical signals flickering for a reversal in EUA prices, forecasts of warmer temperatures for Europe, announced midweek, resulted in carbon’s sharpest weekly price drop since March last year; albeit from record highs. The move was further coerced by a sharp pull-back in the European gas market.
Brent closed lower week-on-week, with traders acknowledging bearish technical signals alongside widespread pandemic related restrictions in Europe and a yet-another resurgence of the virus in Asia.
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