Please find enclosed our daily report on power, gas and oil market:
The USD lost some value yesterday again in the wake of some Fed officials bearish comments (curtailing expectations of a near-term U.S. interest rate hike) but markets are now focusing on the job report this afternoon. It will be the main event before the Chinese New Year next week in Asia.
Main events:
– Yesterday, the main event was the jobless claims in US: Initial claims for state unemployment benefits increased +8,000 to a seasonally adjusted 285,000 for the week ended Jan. 30. Claims remained below the 300,000 mark but they rose more than expected last week, suggesting some loss of momentum in the labour market. These figures reinforced pessimism about US economy and it is a negative signal for the job report to be released this afternoon although the ADP data were rather good on Wednesday.
– This morning, weaker domestic demand drove a bigger-than-expected drop in German industrial orders in December; Factory orders were down -0.7 % last month.
– Yesterday in UK, The Bank of England cut its growth forecasts and the only policymaker who had been pushing for a rate hike reversed his position: this suggests that rates will stay on hold for the foreseeable future but BoE Governor Mark Carney said officials still expected the next move in interest rates to be upwards…
On the agenda today:
– Majors American indicators will be the main event today at 2:30 pm especially the job report. The consensus is 200k jobs approx., far below the 290k jobs created in December and from the average 284k jobs creation per month in the fourth quarter of 2015… Many US indicators are pointing to a slowing of economy and this will have an impact on the jobs creation soon, it could be today (or next month) and that would make very unlikely any rate cut by the Fed in the near future.
EUR/USD: we don’t see big moves today before the job report at 2:30 pm. A weak job report (<200k jobs) could take the pair higher maybe around 1.13 but if job creation numbers remain on a solid path, the dollar could strengthen and get back on its high Bollinger at 1.115.

• Oil: Close to close at $34.46bbl for Brent ICE (This morning at $ 34.06/bbl)

Oil prices direction was finally bearish yesterday despite erratic moves during the session, showing still the same strong volatility as we have seen since the beginning of 2016. The barrel of Brent is back around $34/b while WTI holds around $31.5/b this morning, both benchmark showing a 60 cents loss close to close yesterday (-2% approx.). The sentiment was a wait-and-see mood with operators talking their profit after the huge jump of Wednesday before both the US job report this afternoon and ahead of the Lunar New Year holiday that will take many Asian operators far from their desks next week. The weakening dollar helped to cap losses.
Main events:
– Meanwhile, Venezuela is still lobbying for action on prices and the Oil Minister Del Pino is today visiting Qatar. He also met Oman’s oil minister and he is due to meet Saudi Oil Minister Ali al-Naimi in Riyadh on Sunday. On Wednesday, Iranian news agency Shana quoted Del Pino as saying six producing countries, including OPEC members Iran and Iraq and non-members Russia and Oman, supported a producer meeting. But so far, none of OPEC’s Gulf members, including top exporter Saudi Arabia, has publicly backed a meeting. There has already been much discussions about such an event but it seems so far that OPEC is enable to make a decision at the moment. The solution could come from some OPEC country excluding Saudi Arabia together with some non-OPEC country (Russia) but that would mean that Riyadh would be the great winner of it : price support without domestic output cut… For this reason it seems very unlikely also. Situation is complex and the most likely outcome of all the current ongoing negotiations is probably ‘nothing’.
Next mover for markets in general will be the US job report this afternoon at 2:30 pm. It will be closely watch for many reasons (see daily eco ) with major impact on the dollar strength. Next week will be the release week for the three main monthly reports (EIA and IEA on 9th, OPEC on 10th) and they should provide new figures on market fundamentals, maybe not very bullish… For today, we see prices continuing on their downward trend towards $33/b. The Bakker Hughes rig count at 7pm will be the last indicator of the day.

• Gas: Close to close at 14.28EUR /MWh for TTF CAL 17 (This morning at 14.15EUR /MWh)

European gas prices weakened on Thursday, pressured by weak demand, ample supply and lower oil prices despite some intraday volatility in crude markets.

The UK system remained oversupplied throughout the session due to higher Norwegian imports, strong LNG send outs and high storage withdrawals while British gas demand was expected to decrease on Friday, which exerted downward pressure on NBP prompt contracts. Mild weather and an increase in Dutch production continued to weigh on prompt contracts on the continent.

A sharp drop of the pound against the euro limited losses on the British curve. NBP ICE March 2016 prices lost 0.76 p/th at the close (-2.57%), to 28.81 p/th. TTF ICE March 2016 prices were also down at the close: -52 euro cents (-4.01%), to €12.406/MWh. Contracts were more resilient further out on the curve as oil prices were volatile, widening the TTF ICE WIN 16-SUM 16 spread to a new 6-month high to €1.75/MWh at the close. TTF ICE Cal 2017 prices were assessed 23 euro cents lower at the close (-1.56%), to €14.283/MWh.

The UK system is balanced today but nominations for storage withdrawals dropped significantly while Langeled flows jumped to capacity and LNG send outs remained at 45 mm cm/day this morning. This is likely to exert further bearish pressure on NBP day-ahead prices today, but this could be offset by higher demand expectations for next week in the UK and a halt if flows to the Bacton Shell terminal which may be due to an unplanned outage. Nevertheless, the trend remains bearish on the curve and NBP March 16 prices hit a new record low at the opening. Temperature forecasts remain very mild for the beginning of next week on the continent, which could continue to weigh on spot contracts and near-curve contracts. With a slightly bearish outlook for Brent prices today, far-curve contracts could remain under downward pressure. First technical supports are at €14/MWh and €13.75/MWh for TTF Cal 2017 prices.

• Coal: Close to close at $38.30 Ton for API2 CAL 17 (This morning at $38.10)
• EUA: Close to close at EUR 5.62/Ton for EUA DEC16

EUA prices continued flat yesterday, narrowing the intraday trading range to just 15 cents. There were contradicting signals: oil prices remaining fairly supported for most of the session, a stronger European currency that could have boosted demand for dollar-priced commodities, such as coal and oil, and falling coal prices, which in the end push German Cal17 prices just below their current support. Finding a clear price direction in that context was difficult and market traders remained cautious. Demand at auctions was constant. A subject of interest for airlines, note that the EUA-EUAA spread has been squeezed to just 5 cents as demand for EUAAs soared. The last EUAA auction attracted 3.86 Million bids, 5.6 times the offer.
EUA prices have been trapped into a very small trading range in the past 3 sessions and they’ll have to break either the close resistance or the close support in the short-term, and this could prompt a sharp correction. There is likely more risk to the downside with German wholesale prices breaking a support yesterday, and German industrial orders for December falling more than expected (figures were released this morning). Brent prices could also break their 5 day moving average to the downside after the publication of the US job report this afternoon. All in all, macroeconomic indicators could weigh down on CO2 prices today.

• Power: Close to close at EUR 22.60MWh for German power CAL 17 (This morning at EUR 22.45/MWh)

The dynamic on the prompt was little changed yesterday. This week is ending with the same bearish feeling we have seen over the past days. Yesterday, wind output was moderately revised downwards, which is a bit supportive for Monday baseload power prices. Temperatures are still seen way above average levels over the next days and thermal availability is comfortable. France has around 57GW of nuclear production; Germany 10.6GW and Belgium 5.9GW. Lignite availability in Germany is currently at 18GW. Next week, it could add another 1 to 2GW.
On the curve, markets remain quite nervous. Oil and equity markets were range-bound yesterday and failed to provide a clear view on where global indicators are heading to.
The USD continued to lose value against the EUR (the exchange rate hit an intraday high of 1.1238 yesterday against 1.08-0.9 by the start of the week), while coal prices in USD terms (the API2 year-ahead contract is currently being traded at $38.25/ton) fell. Consequently, this had a bearish impact on clean coal costs, and brought the German year-ahead to new record-lows of €22.55/MWh this morning. The EUA dec16 contract also weakened yesterday a tad and is currently being traded at €5.62/ton.
The fact that the euro strengthened against the USD and increases the bearish pressure on coal prices for EU players at the same time when oil rebounds and supports gas, increased the spread between German and other NWE contracts recently. This means that the bearish pressure is currently stronger on German power prices…which was not the case over the past weeks.
Yesterday and overnight, economic indicators confirmed the current trend (jobless claims in the US were a bit worse than expected, German industrial orders donw), so that the USD could remain weak today. Nonfarm payrolls are also expected this afternoon (02:30pm). If they confirm the weakness of the USD, there is few hope for a recovery in German power prices and more downside could be in sight today.