UK review: Far curve succumbs to bears as short-term nature of drivers exposed
Near-curve contracts dealt with substantially bullish weather-driven sentiment for the duration of Week 4, which initially fed through to the far curve.
But the "short-term nature" of the drivers that many traders had highlighted was exposed by mid-week, as the far curve succumbed to increasing pressure from a bearish fuels complex, despite contracts close to delivery continuing their bull run.
Summer '10 Baseload lost £0.55/MWh between close on Monday and Thursday, while Summer '11 Baseload recorded a more pronounced loss of £1.40/MWh, or 3.6% of its value, over the same period.
But the Weekend contract gained £3.00/MWh Monday-Thursday, equivalent to 7.7% of its value, while Week 5 and Week 6 Baseload remained coupled, both clocking up weekly gains of £2.90/MWh.
Predictions of impending cold weather were responsible for the bullish opening to the week, combined with several nuclear niggles on the supply side.
These issues linked with bullish gas sentiment, gains on near curve coal contracts and a bullish carbon market overturned the bearish sentiment that characterised Week 3.
By Tuesday, long-term contracts were beginning to react to the lack of fundamental support, as Summer '10-Winter '11 Baseload all recorded gains but Summer '12 Baseload outwards all lost ground. Between Monday and Thursday, seasons from Summer '11 outwards all shed at least £0.95/MWh on the Baseload.
Seasonal spark spreads began to narrow as the gains on gas outstripped those on power due to the lack of long-term drivers, which was reflected in the UK's generation mix. Gas, which had been the dominant fuel through the start of the week, was replaced by coal on Thursday, when the latter accounted for 40.7% of the UK's total power generation compared with gas's 38.7%.
February '10 Baseload, with delivery pending, recorded the most pronounced gain of the monthly contracts, rising £1.90/MWh Monday-Thursday, or 4.9%, on the back of the bullish prompt. JS
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