UK: Spread may point to Summer ‘11 downside
Seasonal contracts ticked lower on Friday, in line with the softening NBP, as comfortable power and gas systems ensured the bulls were nowhere to be seen. Gains on coal and a bullish day on crude markets did little to move things in the opposite direction.
Spot trade was similarly bearish in line with fundamentals, resulting in a £48.00/MWh Day-ahead Baseload close, a £0.50/MWh discount to Thursday's price.
February '11 Baseload, trading its last session before expiry, opened at £47.90/MWh, a £0.15/MWh premium to its closing assessment on Thursday. But expectations of a return to seasonal normal temperatures in the first half of February led to a softening of observed markets, and the contract was last assessed at £47.40/MWh, a day-on-day loss of £0.35/MWh.
"There were no shorts out there on February or March," one source said. "All the action was on the sell side. The market unravelled a chunk of length this afternoon."
The downside on the NBP was attributed to the fact that, even with cold weather and a lack of Norwegian deliveries, the system was long. Hence, the market was very bearish, and the lack of bullish drivers filtered through to seasonal power contracts.
Summer '11 Baseload lost £0.30/MWh to close at £46.35/MWh, with Winter '11 Baseload ending the session down £0.15/MWh at £49.90/MWh. This resulted in a spread between the two forward seasons of £3.55/MWh.
One source agreed that the spread appeared narrow. The figure represented just 52% of the spread twelve months ago, when the contango between the two then-forward seasons stood at £6.80/MWh. "If the spread broadens as it should, it's going to be because the Summer is falling, as opposed to the Winter gaining," one source claimed.
The continuation of comfortable system fundamentals was cited as the dominant driver behind spot and short-term bearishness. Demand was comparatively volatile, outturning 740MW above National Grid forecasts around midday, before diving 710MW short of forecasts just three hours later.
The cash-out high remained relatively restrained at £70.12/MWh, down from £85.79/MWh on Thursday, reflecting the ease with which the system coped with the rollercoaster demand profile.
Coal burn accounted for 44.2% of the UK's generated power over the 24-hour period ending 16:00, which put coal 8.1 percentage points ahead of the 36.1% share occupied by gas. This was the largest margin between the two dominant fuels - with coal above gas - since 30 December. JS
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