Spain: Spot falls and recovers, while the curve edges up
Long-term contracts closed a notch above their levels seven days before, with bearish spot prices and losses in some fuels preventing a further appreciation, market participants said on Wednesday.
Intra-week, however, the curve recovered from a big slump on Monday and Tuesday when the Iberian spot power exchange OMEL out-turned as low as €26.81/MWh and €26.22/MWh respectively.
"The spot fell a lot again with abundant wind and hydro generation," one Spanish trader said. "Fortunately, it recovered all losses on Wednesday."
According to one meteorologist, available wind generation capacity reached 10GWh on Tuesday. Meanwhile, hydro generation levels advanced on the week to reach a seven-day high of 182.241GWh/day on Thursday, reducing gradually in subsequent days to reach a seven-day low of 155.672GWh on Wednesday.
On Wednesday, spot prices were back at €31.34/MWh close to but still a notch below last week's levels.
Gains on European summer gas prices lifted the Q3 '10 contract, traders said, providing also some impetus on the rest of the mid-curve. European gas prices are used in Spain as one reference for Algerian gas under long-term contracts. The NBP Summer 2010 gas contract gained 2.12p/th in the past seven days, closing at 33.91p/th on Wednesday.
Q2' 10 advanced less than Q3 and a result the spread between Q2 and Q3 widened, in line with expectations from market participants surveyed by ICIS Heren last Friday (see analysis on EDEM 22 January 2010). However participants at the time saw the spot as the main bullish driver for Q3 '10 instead of gas.
The Q2-Q3 spread widened to €2.25/MWh on Wednesday, up from the €1.80/MWh recorded on Thursday. "Q2 took a lot of punishment from the low spot, but there is still time to go before delivery date and I believe there is upside potential there, particularly if we look at its third component month," said one trader. June Baseload was not recorded to have traded on Wednesday, but was bid at €35.50/MWh and offered at €37.00/MWh on one broker screen.
The front-year contract adjusted upwards by €0.30/MWh week on week to close on Wednesday at €42.60/MWh, lifted mainly by Q3 '10, which is used a reference for valuation of the Cal '11 component quarter Q3 '11. The main fuels moved in a bearish trajectory over the week, limiting growth on Cal '11. Front-month Brent crude was down week on week by $2.70/bbl closing at 17:00 UK time at $73.50/bbl, distancing itself from the $80.00/bbl level recorded earlier in January. CIF ARA front-year coal swaps shed nearly $3.00/tonne week on week, being assessed on Wednesday at $95.65/tonne, also a far cry from the $100.00/tonne levels recorded earlier this month. FR
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