Continental: Freezing temperatures push prompt upwards
The Week-ahead contracts on the French and German prompts continued to strengthen on Wednesday, with cold-weather forecasts continuing into next week driving the bulls. On the far curve, the German Calendar Year 2011 Baseload once again overstepped the €50.00/MWh level.
Freezing temperatures are forecast to continue well into next week, which pulled the French Week-ahead Baseload up to €62.50/MWh, a €2.50/MWh increase from the previous session.
"The increases are mainly driven by the weather. However, the gas was an underlying element," one trader said as Wednesday data from French grid operator RTE showed forecast temperatures for Monday at 5.2°C below the seasonal average. The data also predicted the below-average temperatures to continue through Tuesday and Wednesday.
Freezing temperatures pushed gas prompt prices up by almost €1.00/MWh since last night's close and gas traders said that people seem reluctant to sell, as the temperatures are predicted to stay cold for some time.
The day on day gains were less pronounced in Germany but the country's Week-ahead Baseload still closed €1.75/MWh higher, at €48.75/MWh.
Wind generation forecasts of around 10GW for Thursday undermined the German Day-ahead Baseload value, which last dealt OTC at €41.75/MWh, but traders said wind levels are expected to fall to only 2GW on Friday which, combined with the cold weather, could cause prices to pick up again.
The effect of the cold weather also lifted the front of the curve in both markets, but traders again linked them with rising gas prices. "The effect of the cold is extending through February and lifting March. I suspect they rose along with gas, which was also pushed higher by the cold," said one participant.
The French February '10 Baseload contract was boosted to €55.00/MWh, an increase of €3.75/MWh on the previous session - the largest day on day change since 18 November, according to ICIS Heren data. Even so, traders predicted the contract could rise further. The front-month gains also strengthened March '10 Baseload by €1.40/MWh, to close at €44.00/MWh.
On the far curve, the German Cal '11 Baseload once again broke its earlier support level of €50.00/MWh in early trading, reported dealing as high as €50.35/MWh, but was later sold back down to close at €50.00/MWh.
These gains contrasted predictions made earlier in the week, when traders put the support level at €49.00/MWh. But sentiment remains bearish, as the contract rose in line with gains on other commodities and emissions.
"There is a lot of support everywhere, the markets are profiting so this is a natural reaction," one trader said, adding the contract could go up to €51.00/MWh before falling again to €49.00/MWh.
Others, however, suggested the contract closed higher due to short-covering and technical trading. "I suspect people are closing shorts and were buying the contract up. I think the peak is overvalued and expect it to come down further," one said.
The German-French Cal '11 Baseload spread increased slightly day on day, but traders believed the French contract gains were driven by the German. MU
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