German/French: Liquidity drops as markets take a breather
After a turbulent week for the fuels complex, the French and German power markets were quiet on Friday, despite the strong performance of the spot and prompt contracts.
Activity on the German benchmark contract Calendar Year 2012 Baseload was stilted on Friday as traders reported that natural buyers were absent from the market. After opening at €53.00/MWh in the morning, the contract fell to reach the session's low at €52.75/MWh before activity in the last hour of trading sent the contract higher to close €53.25/MWh, up €0.15/MWh day on day.
"The market was quiet all day, and appeared to have little or no direction, "one trader said. "It looks like the fuels complex was exhausted after the turbulent week and everything ground to a halt today."
Although traders agreed that the German power market hasn't been tracking oil prices too closely throughout the week, the majority still thought that's where the price drivers are likely to come from in the near-future: "We haven't been following oil one by one at all, but everyone is looking at the Middle East and as the situation seems far from resolved it is likely that oil prices could spike further," one said. "If that happens, power will most likely climb higher."
Others, however, thought the most likely driver for power levels would be the European coal market, which - despite the bullish start to the week - defied the moves in oil: "If CIF ARA Cal '12 drops below $120.00/tonne, then German power will most likely be bearish as a result. However, if coal breaks higher, this would give a very bullish signal to the power market," one said.
On Friday, the CIF ARA Cal '12 closed at $120.75/tonne, $0.15/tonne higher session on session.
Further out, reports that one of the largest German power utilities RWE could cut its 2011-2013 investments by €3bn and delay or sell some of its existing power projects (see EDEM 24 February 2011) provided some premium to the Cal '13 Baseload, traders said. Despite this, the contract gained just €0.05/MWh day on day to close at €54.25/MWh.
Friday's liquidity was even thinner on the French power market, with Cal '12 Baseload closing at €54.95/MWh, up by €0.25/MWh session on session, while, Cal '13 was assessed at €55.40/MWh, €0.05/MWh higher day on day.
Closer in, next week's delivery levels were affected mainly by the lower temperatures and lower nuclear availability levels in both Germany and France.
An unexpected outage at RWE's 1.3GW Biblis B nuclear reactor added the pressure to the Day-ahead and Week-ahead Baseload contracts, traders said.
Furthermore, solar power generation of some 1.5GW and wind power generation of 2-5GW throughout the week did little to suppress prompt levels as cold weather in France is expected to put further pressure on German supply levels.
German Day-ahead Baseload closed at €58.35/MWh, €2.20/MWh above the previous session's close, while the corresponding French contract closed at €58.30/MWh, €2.30/MWh higher than Friday's delivery level. MV
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