Like every year, as we enter winter, the commodity outlook is clouded by weather and supply uncertainty. In recent years, global factors are also taking a heightened role as Europe moves towards greater LNG reliance. Headlines like the U.S. Presidential Election, Brexit and COVID-19 have meant the level of uncertainty this year is higher than ever. .
Over the summer, fundamentals have changed drastically. Over the past few months, some aspects have become a bit clearer but there are still some key uncertainties:
Firstly, LNG supply to Europe has finally started to ramp up since late October, after stronger Asian buying demand and global supply issues previously limited opportunity. Although issues still hamper Australian supply, U.S. supply has returned. This year, weather forecasts look to be especially important, with a high chance of La Nina possibly bringing colder weather to key demand hubs in Asia.
As well as that, further lockdowns and an uncertain economic outlook have caused a lack of buying demand, putting pressure on European carbon contracts, and traders are taking a ‘risk off’ approach through October. With Europe set for a green recovery, could future regulation help support the market, and how will Brexit impact the overall carbon price in the UK from 2021?
Recently French nuclear availability has improved, lowering the risk of tight margins this winter and reducing the need for UK exports. However, any potential changes to Europe’s supply mix, especially at times of low renewable output, could drive volatility.
Potential further lockdowns and demand changes due to COVID-19 will remain a high risk through winter and beyond.
These points are only a few of the many market drivers this winter. In uncertain times like these, it can seem impossible to stay on top of the wholesale energy price as it changes. Energy is a complex business, but hopefully we can make it simpler. You can keep informed on the changing prices through us at EDF. Join our free bi-monthly webinars on the UK Power Market with James Chaplin, Power & Gas Trader in the Portfolio Hedging team.
The next one is coming soon, on 17 November 2020 at 3pm. Don’t miss out! Sign up here.
In the meantime, watch James run through the factors that influence the wholesale price of power – what they are, how they work, and what to look for – in more detail.