February 2017 - Market Summary
Review of Market Trends
Report No. 2
Martin Rawlings
3/8/2017
Contents
Macro Economics.................................................................................................................................. 2
Oil Market: Brent $55.23/bbl, WTI $52.81/bbl ..................................................................................... 4
European Gas Market NBP Price: 1.8862 pence/kWh ......................................................................... 5
UK Electricity Market Average Buy Price: £53.40/MW ......................................................................... 6
Coal Buy Price: £13.26/tonne ............................................................................................................... 7
Carbon Buy Price: €5.19/tonne ............................................................................................................ 7
News ..................................................................................................................................................... 8
UK Energy Markets Report
Macro Economics
GBP
Closing Rate
% Change
EUR
1.1660
0.053%

USD
1.2242
0.16%

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UK Energy Markets Report
United States Dollar:
The Great British Pound is weaker today when valued against its US counterpart on the back of
continued Brexit fears and mixed overnight UK data prints. Sterling slipped to a six-week low of
1.2242 against the US dollar on Thursday after UK's construction PMI for the month of February rose
to 52.5 from 52.2. However, the result was mixed as new orders fell. Following from Wednesday
weaker-than-expected figures from Manufacturing PMI the data suggests Britain’s economy is
starting to slow showing cause for uncertainty.
Also supporting the Greenback was the lowest number since 1973 of US residents filing for jobless
claims, the number of claims for the month ending February 25th edged lower from 242k to 223k
which continues to show strength in the labour market. These factors combined with recent Hawkish
comments from Fed members and an increasing probability of a US rate hike this month, GBP/USD
risk remains towards the downside.
Looking ahead to today, the UK posts Services PMI for the month of February, which is expected to
fall from 54.5 to 54.2 from the previous month, while the US releases their Services and NonManufacturing PMI ahead of Fed Chairman Janet Yellen’s speech in Chicago?
I anticipate a range in the GBP/USD rate of 1.2150 – 1.2315
Euro:
GBP/EUR opens relatively unchanged this morning as UK and European data cancelled each other
out through yesterday’s trading. UK's construction PMI showed an increase in February, with a read
of 52.5, while Eurozone inflation figures met expected levels. Starting the day around the 1.1660
mark, Sterling euro rose to an intraday high of 1.1692 by mid-afternoon but has since traded gradually
lower through US and overnight trade. This morning’s Eurozone Services PMI print came in slightly
down at 55.6 vs 55.6 the previous month, however, market movements are understandably muted
ahead of Janet Yellen’s speech later today.
EUR/USD has dragged lower, touching levels of 1.0495, due to a combination of hawkish comments
from the Fed, Inflation in Europe and improvements to the US labour market. Fed Governor Powell
said overnight that “the case for a rate increase in March has come together” with markets now
pricing in a 92% chance of a hike this month. Over in Europe, the Inflation figure was the highest
recorded in four years of 2% for the month of February. With core inflation still being below target
and the ECB expected to make no changes to their current monetary policy EUR/USD could start to
feel the pressure. As mentioned above, the greenback was further supported by the lowest number of
Jobless claims since 1973.
In terms of data, the UK and Eurozone posts their Services PMI and Retail sales figures respectively,
providing the undercard to tonight’s main event.
I anticipate a range in the GBP/EUR rate of 1.1560 – 1.1700
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UK Energy Markets Report
Oil Market: Brent $55.23/bbl, WTI $52.81/bbl
Brent ICE (USD/b)
55.92

Gasoil ICE (USD/t)
496.25

Fuel 1% Fob cg (USD/t)
313.53

Close to close at $55.93 bbl for Brent ICE (This morning at $ 55.92/bbl)
Prices were almost stable close to close yesterday with Brent first nearby holding around $56/b (WTI
around $54/b), exactly on their monthly average. It seems it is like groundhog day with the same
causes leading to the same effects every day since mid-January : high compliance with OPEC's
production cuts expectation is supporting prices while fear of rising US production cap gains.
Main events:
Iraq and UAE made the headlines yesterday: both countries, resp. second and fourth OPEC producers,
could make more efforts to catch up with their targets. According to Reuters (“officials and industry
sources”), UAE could take steps soon to ensure better compliance during the deal. "The UAE is fully
committed to the OPEC cuts and is undertaking the necessary measures that will ensure it is fully
compliant over the six-month period with the OPEC agreement," the UAE's OPEC governor told
Reuters in a statement.
Iraq that had initially been reluctant to limit supply during negotiations, reduced output from higher
levels than the supply baselines used in the agreement (boosting production before the deal came into
forces): technically, there is some room for more cuts and it seems Iraq's OPEC peers are urging
Baghdad in this direction.
OPEC's average compliance is put by the IEA at a record 90% in January while Reuters estimates it at
88%. A new Reuter’s survey of OPEC production will be released later this week and it will show
compliance for February.
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UK Energy Markets Report
According to Reuters (“sources from OPEC countries and the oil industry”), Saudi Arabia wants
crude oil prices to rise to around $60/b in 2017. Because low prices pressured their finance and
because this level of prices could favour investment in new fields. This target is only 5 dollars above
current levels but that is the gap markets have not been able to fill during the last two months… Those
5 dollars mean a lot and it is the key to call the deal a success. The last effort to reach $60/b is
necessary from OPEC and has to be put in place before US shale flood the markets and the hardly
built supportive context collapses…
Outlook:
Today, we could see markets going up after three negative sessions in a row. Many economic
indicators will be released today but the climax will be Donald Trump’s speech ahead of the congress
around 3 am. Brent contract for delivery in April will expire tonight.
European Gas Market NBP Price: 1.8862 pence/kWh
Day Ahead (p/therm)
55.28

March 2017 (p/therm)
55.19

Summer 2017 (p/therm)
45.73

Close to close at 17.40 EUR /MWh for TTF CAL 18 (This morning at 17.53 EUR /MWh)
European gas prices weakened further on Monday as mild and windy weather dampened gas demand
once again while LNG supply to the UK improved. A long UK system sent a bearish signal to the
NBP month-ahead contract which traded to a new 2017 low below 45 p/therm for the first time since
December. A downward correction in coal prices also played into losses on the far curve. A
strengthening in the euro against the pound provided additional bearish pressure to euro-traded
contracts whereas it limited losses on the NBP curve.
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UK Energy Markets Report
NBP ICE March 2017 prices lost 0.95 p/therm at the close (-2.1%), to 44.86 p/th. TTF ICE March
2017 prices were also down at the close: -52 euro cents (-2.9%), to €17.281/MWh. Further out on the
curve, TTF ICE Cal 2018 prices were assessed 31 euro cents lower at the close (-0.2%), to
€17.403/MWh.
An upward revision in demand forecasts for the coming days could provide support to the prompt
ahead of a largely-awaited announcement on Rough capacity expected today. 45-day temperature
forecasts were revised downwards for March, pointing to average to below-average levels in the
second half of the month which is also a supportive factor. A bullish technical configuration could
also provide some support to the prompt in the short term (see above graph). In addition, the UK
system is balanced today despite stable demand which could support the NBP prompt. All in all, we
favour a stable to bullish outlook for European gas prices today although Centrica’s announcement on
Rough could inject some intraday volatility.
UK Electricity Market Average Buy Price: £53.40/MW
Day Ahead (p/kWh)
4.675

March 2017 (p/kWh)
Q2 2017 (p/kWh)
Summer 2017 (p/kWh)
Winter 2017 (p/kWh)
4.560
4.380
4.300
4.750




Forecasts for lower renewable power generation tomorrow have buoyed the Baseload Day-Ahead into
positive session-on-session territory this morning. Both wind and solar output are expected to decline
tomorrow, placing a greater reliance on more-expensive gas-fired generation in order to meet demand.
An undersupplied gas system has resulted in bullish trade on the NBP Day-Ahead market which has
filtered into the UK power prompt. On the curve movement amongst products has been fairly muted
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UK Energy Markets Report
as bullish signals from the GB Pound to Euro exchange rate have been counterbalanced by the
downward movement of coal and Crude throughout this morning’s trading.
Coal Buy Price: £13.26/tonne
Carbon Buy Price: €5.19/tonne 
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UK Energy Markets Report
News
EDF considers construction of new gas-fired power plant in UK
French utility EDF mulls new gas-fired power plant beside one of its existing plants at West Burton in
Nottinghamshire, in the northeast of England.
The development of a new 299 MW gas-fired power plant is welcomed by the British government
who is attempting to offset a potential future supply gap, as ageing power plants continue to be
replaced.
EDF already owns the 2,000 MW West Burton A coal-fired power plant and the 1,500 MW West
Burton B gas-fired power plant at the Nottinghamshire site.
The growth of intermittent renewable electricity production in Britain means the country needs more
flexible generation which can increase quickly when demand is high.
Daily: Oil prices dropped by 5% at the lowest level this year
Oil prices registered on Wednesday a 5 percent decrease to their lowest levels this year as U.S. crude
inventories jumped to a new record high, increasing worries that a global surplus might last even with
OPEC trying to sustain prices with production cuts.
U.S. West Texas Intermediate crude settled down $2.86, or 5.38 percent, at $50.28 per barrel, after it
dropped to its lowest level since December 15. Meanwhile, Brent crude closed the session at $53.11,
down $2.81 or 5.03%, after having hit $52.93, its lowest level since December 8.
British gas prices fell on Wednesday, as traders said that milder weather has cut demand for gas-fired
heating with above-average temperatures predictions for next week.
Day-ahead gas price settled down by 0.70% at 42.40 pence per therm, while gas price for delivery
next month decreased by 1.42% to end the session at 42.32 p/therm.
European spot electricity prices were mixed on Wednesday as Germany's day-ahead contract
increased on anticipated lower wind power production forecasts while French prices fell, responding
to decreasing demand.
German baseload power for Thursday delivery gained 1.81 euros to 38.22 euros per megawatt hour
(MWh), while French day-ahead power was down 96 cents at 42.07 euros.
EU carbon prices dropped for a third straight day on Wednesday to put back the rest of the gains
recorded after last week’s EU Council agreement on ambitious ETS reforms. Benchmark EU carbon
contract expiring in December 2017 closed down by 0.14 euro to 5.24 euros per tonne.
Scottish government launches four-month public consultation on fracking
The Scottish government has launched a consultation on whether unconventional oil and gas
extraction should be allowed in the country.
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UK Energy Markets Report
A moratorium on unconventional oil and gas development in Scotland remains in place since January
2015 - banning all forms of it until the outcome of the consultation.
The Scottish Parliament had previously voted in favour of a ban - which saw Labour, the Scottish
Greens and Liberal Democrats supporting a ban, while the Conservatives opposed it and the SNP
abstained.
Scotland is likely to hold substantial amounts of shale gas which are trapped in underground rocks.
The British government wants to exploit these resources to help offset declining North Sea oil and gas
output.
The consultation will run until 31 May and is open to members of the public as well as industry.
Annual gas consumption in Scotland is around 150 billion cubic feet/year, with some 78 percent of
homes using gas as their primary heating fuel.
Fracking is a risky technique which involves drilling rigs and other heavy machinery, underground
explosions, and pumping a mix of fresh water, sand and hundreds of tonnes of chemicals into the
ground.
Terminology
 All oil prices: in US dollar
 Oil product: Brent crude or West Texas Intermediary (WTI)
 Mb/d – Million Barrels per day.
 Freight rates: US dollar per tonne.
 Natural gas prices quoted as pence per therm.
 Power prices quoted as Pounds Sterling per MWh.
 CO2 market: EURO
Information & Data Sources
1. Total Gas & Power
2. GdF Suez
3. Haven Power
4. Coal spot.com
5. Forex
6. ICIS
Disclaimer
This material is intended for information purposes only. It does not constitute an independent investment
research, a personal recommendation or other general recommendation relating to transactions in financial
instruments or an investment advice.
This material is intended for general distribution, it does not take into account any specific investment
objectives, financial situation or particular needs of any recipient. It cannot be transmitted to any other person
without the prior written consent of Martin Rawlings.
The information contained herein, including any expression of opinion, is not intended to constitute an offer or
a solicitation to buy or sell any financial instruments, products or services, an investment research or an
investment recommendation or other financial, investment, legal, tax or accounting advice or any other advice.
Further, all information contained herein has been obtained from and/or is based upon sources believed to be
reliable is deemed to be clear, fair and not misleading but cannot be guaranteed as to accuracy or
completeness. The views and opinions, forecasts, assumptions, estimates and target prices reflected in this
material are as of the date indicated and are subject to change at any time without prior notice. The figures that
may refer to past performance herein are in no instance an indication of future valuations or future
performance. Martin Rawlings is under no obligation to disclose or to take account of this document when
advising or dealing with or for its customers. Martin Rawlings nor any other person accept any liability to
anyone for any direct, indirect, special, incidental, consequential, punitive or exemplary damages (including,
but not limited to, lost profits) arising from the use and dissemination of this material or the information
contained herein.
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UK Energy Markets Report
Contact me:
T: 01638 780974
E: [email protected]
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