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END OF DAY – Cold outlook supports energy complex

(Montel) European fuel and emissions prices climbed on Friday as markets priced in greater confidence that a flip to colder, less windy weather from this weekend will support thermal energy demand.

The front-month contract for gas on the Dutch TTF hub was last seen up EUR 1.29 at EUR 34.70/MWh. Earlier it touched its highest level in nine days at EUR 35.06/MWh.

Today’s gains were “all about the weather”, said one German trader.

Especially cold forecasts for next week were combining with spot market signals that already reflected a rise in demand off recent weak levels, he added.

Within-day gas prices on the UK’s NBP hub jumped 13% on one platform to 87p/th.

UK gas demand was on track to swell by roughly a third off present levels next week, according to TSO National Grid.

It forecast UK demand to come in at 263mcm/day today, compared to a seasonal norm of 286mcm/day. Yet this should rise above 300mcm/day from next week to hit a peak of 353mcm/day on Tuesday.  

Cold snap
The continent’s cold snap should last around a fortnight, though colder than normal conditions were likely to persist into the first week of February, according to forecaster SMHI.  

Temperatures in Europe’s biggest gas market, Germany, should swing from an average of almost 3C above normal this week to 4C below next week, according to Montel Energy Quantified data.

Wind generation should slump by almost two-thirds to average 11 GW next week, around 14 GW below normal.

Coal, an alternative to gas for power generation, tracked the gains with front-month delivery into northwestern Europe last up 3% at USD 116/t. It has added roughly USD 10 since Tuesday.

Bearish CO2 outlook
Europe’s carbon market also responded to the cold, which coincided with an absence of fresh supply for the market until 15 January when auctions would resume, said market participants.

The benchmark Dec 24 EUA contract was last seen up EUR 0.53 at EUR 76.35/t. Yet it remained 5% lower on the week following a sharp sell-off at the start of the year.

“Anticipation of the upcoming restart of auctions could start to get reflected in EUA prices in the form of downside as next week progresses, although an offsetting factor is the forecast colder weather,” said Benjamin Lee of consultancy Energy Aspects.

He expected investors, who continued to unwind short positions last week, to remain generally net short in 2024 “given fundamentals are not supportive this year”.

Riham Wahba, an analyst at carbon brokerage Vertis, agreed, noting pressure from a combination of expanded auction supply this year on the back of a 23% drop in EU power sector emissions last year.  

“Speculators are the ones commanding the situation on the EU ETS currently as they expect more bearishness ahead,” Wahba said.