Please find enclosed our daily report on power, gas and oil market:
Financial markets remain caught in downward spiral fuelled by sharply lower oil prices, worries about China and now doubts about the strength of the US economy. Estimates of Q4 GDP growth in the US took another hit on Friday after the release of very weak retail sales and industrial output data. The EUR/USD pair jumped to 1.0985, but is now back to around 1.09, as lower prospects of further rate hikes go along with stronger probability of additional ECB easing.
– The main event over the week-end was of course the removal of sanctions linked to the nuclear file against Iran, even if additional sanctions have been added in parallel, but this is in comparison a minor issue. Full details are available in the Daily oil. The consequence of that has been logically further decline in oil prices and new bearish pressures on equity markets. Moreover, the Chinese authorities are still trying to stop the speculation against the Yuan and have therefore announced new rules that will come into effect on January 25 and will impose reserve ratio on Yuan deposited on-shore by overseas financial institutions. Still in China, the property prices survey continued to show recovery in prices of the big main cities, but the rest of the market remains heavy, which suggests this rebound carries a big part of speculation.
– In the US, economic data released last Friday confirmed the recent trends: retail sales were down 0.3% in real terms and industrial output contracted by 0.6%, including -0.1% for manufacturing output for the second month in a row in December. The Atlanta Fed GDP growth estimate for Q4 (probably the most observed) fell to +0.6% on a qoq annualized basis. Yet, the University of Michigan consumer confidence indicator was up. In other words, consumers look confident but they do not spend. Consumer spending may be up by less than 2% in Q4. The implied probability of a Fed rate hike declined further and the 1st move is now only seen in September by markets (57%). It is almost 50/50 for June (46%) and July (49%).
On the agenda today:
– Martin Luther King’s day in the US and almost nothing elsewhere. The Troika (ECB-EU-IMF) will meet and discuss about Greece.
EUR/USD: still no big move in sight. Support around 1.0850, but we expect the exchange rate to remain close to the 5 and 20-day moving averages just below 1.09.
• Oil: Close to close at $28.94bbl for Brent ICE (This morning at $ 28.61/bbl)
Oil prices hit their lowest since 2003 early this morning as the markets are expected to see a jump in Iranian exports after the lifting of sanctions against the country over the weekend. Indeed, as expected last Friday, the UN nuclear watchdog said Tehran had met its commitments to curtail its nuclear program on Saturday : EU and US immediately revoked corresponding sanctions. Brent felt -$1/b and touched a new 13-years low at $26.67/b while WTI still trades with a premium to international benchmarks after setting a new minimum at $28.36/b early this morning.
– The end of this decades long dispute between Iran and the western powers came over the week-end and was largely expected after some statements last week. Prices are still on very low levels in a strongly oversupplied market and the timing is not the best but Tehran claims for months it will regain its market shares whatever the consequences : The deputy oil minister said on Sunday, hours after international sanctions on Tehran were lifted, that Iran is ready to increase its exports by +0.5 Mbd immediately. The pre-sanctions level before 2011 was around 2 Mbd compared to a current 1 Mbd. However, most traders and analysts are considering Iran’s ambitions to export +500 kbd in the very short term not very realistic.
UN sanctions on Iran have been lifted, including the embargo on oil imports, but the US embargo on trade with Iran remains : All EU sanctions are lifted, the US sanctions prohibiting foreign companies from transacting with Iran are lifted but “primary US sanctions” will remain in place for US companies (except aviation, humanitarian and agriculture)
– US drillers removed one oil rig last week, bringing the total rig count down to 515, the least since April 2010 according to Bakker Hughes.
– In this bearish move, money managers and speculators pushed their bearish bets in the US crude market to a record high last week to an equivalent of 200 Mb.
Tehran finally lift one of the main uncertainties for 2016 and markets will now see what Iranians really can export and when! The expected flood is largely priced in the current levels and we could expect a small rebound this week but next statements will be decisive to see if we target $25/b this week or if some support can be found. Today, we will wait for the OPEC monthly report and then the WTI contract expiration tonight. Talking about levels for today, we see prices staying around $28/b waiting to see what will be the first Iranians’ concrete move, especially regarding their numerous crude loaded tankers waiting off their coasts…
• Gas: Close to close at 13.72EUR /MWh for TTF CAL 17 (This morning at 13.70EUR /MWh)
European prices ended the week on a bearish note on Friday, pressured by weak oil prices and expectations of warmer weather by the end of this week. A strong increase in the euro against the pound provided additional bearish pressure on euro-traded contracts, whereas it limited losses on the NBP curve.
In the UK, gas demand increased further to a new winter high but the system remained oversupplied due to high storage withdrawals as shippers may prefer to withdraw gas as soon as possible due to a bearish outlook for the remainder of the winter season. On the continent, gas demand continued to increase in the Netherlands, but resilient Dutch production and higher Norwegian imports helped to balance the Dutch system.
NBP ICE February 2016 prices lost 0.57 p/th at the close (-1.78%), to 31.38 p/th. TTF ICE February 2016 prices were sharply down at the close: -44 euro cents (-3.17%), to €13.321/MWh. Further out on the curve, calendar prices dropped below €14/MWh. TTF ICE Cal 2017 prices were assessed 39 euro cents lower at the close (-2.79%), to €13.72/MWh.
Norwegian supply is constrained by an unplanned outage at the Oseberg field this morning. Exports to the UK through the Langeled pipeline are the most impacted, triggering an increase in storage withdrawals to cope with strong demand this morning. Indeed, UK gas demand is expected to be at a record high since the beginning of the winter season, and 60 mm cm above seasonal norms. This could provide some support to NBP prompt contracts, although temperature forecasts are still indicating the return of milder weather by the end of the week, which could limit any rebound in the very short term. Today is expected to be the coldest day of winter so far on the continent, with temperatures likely to gradually increase throughout the week. All in all, we favour a stable to bearish outlook for continental prompt contracts today with further bearishness expected later this week. Brent prices dropped further below $28/bbl after sanctions against Iran were lifted this weekend, which is likely to pressure far-curve contracts down to new record lows today.
• Coal: Close to close at $37.90 Ton for API2 CAL 17 (This morning at $37.50)
• EUA: Close to close at EUR 7.10/Ton for EUA DEC16
Carbon contracts are also down again this morning. The EUA Dec16 opened this morning at €6.60/ton, €0.12/ton lower than where the market closed on Friday.
Taking the fundamental picture, weaker oil and further supply at auctions this week, the context is still not supportive. Players will keep a close eye at these auctions to gauge markets’ appetite.
Technically seen, there are some bullish factors, but the fact that the open interest rose last week when prices dropped heavily is a weak signal. Next strong support levels is at €6.28/ton, the weakest point for the front-Dec last year.
This €6.28/ton support level is important in our view, as it could trigger both long positions being sold and additional short positions being taken. Be aware that China’s GDP Q415 will be published tomorrow overnight which could drive sentiment.
• Power: Close to close at EUR 23.60MWh for German power CAL 17 (This morning at EUR 23.40/MWh)
German prompt contracts are a bit supported for the time being. Cold weather and weak prospects in terms of wind generation lift week-ahead prices this morning. In France, this week should be quite tight: spot prices are today at a month-high, at €47.66/MWh with hourly prices to €66.37/MWh. Thursday, a strike action is still foreseen and the impact is not known so far. But cold weather is not to last and nuclear availability is up today. Month-ahead baseload prices in France were clearly down on Friday as forecasts were already revised upwards for temperatures.
On the far curve, power prices are taking a toll this morning from this weekend’s announcement that Iran’s sanctions are concretely lifted which will attract investments and new business opportunities. That ‘s the good point and equity futures are up this morning. However, the Brent 1st nearby contract is down again this morning and this does not bode well for commodity markets and emerging countries.
Carbon contracts are also down again this morning. The EUA dec16 opened this morning at €6.60/ton, €0.12/ton lower than where the market closed on Friday. Taking the fundamental picture, weaker oil and further supply at auctions this week, the context is still not supportive. Players will keep a close eye at these auctions to gauge markets’ appetite. Technically seen, there are some bullish factors, but the fact that the open interest rose last week when prices dropped heavily is a weak signal. Next strong support levels is at €6.28/ton, the weakest point for the front-Dec last year.
At the end of the day, the prompt could be a bit supportive today, but far curve contracts could lose further ground due to oil today. There is also still a clear downward risk on carbon. This €6.28/ton support level is important in our view, as it could trigger both long positions being sold and additional short positions being taken.
Currently, the German year-ahead power price is at its lowest ever. However, there is still no strong fuel for a rebound. Be aware that China’s GDP Q415 will be published tomorrow overnight which could drive sentiment.