gasnewsbuilder.gdfsuez-globalenergy.info/model/...286...the week began with opec’s technical...
TRANSCRIPT
Week from 18-11-2016 to 25-11-2016
Macroéconomie et ChangeThe calm before the storm?
PétroleUps and downs for Brent ahead of the crucial OPEC meeting on Wednesday
GasStable prices in Europe
CoalSentiment remained unchanged in China
PowerGood news on French power but we are far from the end
EmissionsEUA prices back under €5.0/t
Price Summary
Week from 18-11-2016 to 25-11-2016 - Macroéconomie et Change 2/20
Macroéconomie et ChangeThe calm before the storm?Stock markets continued to rise last week, however the Trump effect is causing uncertainty: long-term rates arestabilising, as is the dollar. The week was cut short by Thanksgiving in the United States and the calendar for the comingweek is very full, urging caution. On the menu: OPEC, the US jobs report and the Italian referendum to round things off.The EUR/USD pair fell to a new low of almost 1.05, but has since rebounded above 1.06.
Interest rates and exchange rates
Source: Bloomberg, EGM Research
Last week was cut short on the financial markets, with Thanksgiving in the United States and a busy economic scheduleon Wednesday. The combination of a sharp rise in orders of durable goods (up 4.8% in October) and the ‘minutes’ of theFed confirming that is was almost a certainty that the Fed would raise rates in December in the United States hastemporarily strengthened the rise in long-term rates and the appreciation of the dollar. The USD/JPY pair approached 114while the EUR/USD pair fell to 1.0518, its lowest level since March 2015. However ultimately, these trends were notconfirmed. It should be noted that the figures for orders of durable goods were as deceptive as usual, due to a 94% surgein civil aviation orders. The underlying indicator, excluding defence and aerospace, only rose 0.4% following a 1.4% fall inSeptember, confirming the weakness of productive investment.
EUR/USD
Source: Bloomberg, EGM Research
Orders of durable goods in the United States
Source: Bloomberg, EGM Research
In Europe, the week was also fairly calm. PMI indices for the eurozone recorded a surprise rise in November, in servicesespecially. Due to this, the composite index rose to 54.1, its highest level this year, fuelling hopes of an acceleration ofactivity in the final quarter.
In the United Kingdom, the Chancellor of the Exchequer, M. Hammond, presented the first budget outlook since thereferendum. Unsurprisingly, Brexit should in the short term lead to less growth in 2017 (up 1.4% compared to the 2.2%expected previously) but also over the next five years (down 1.4% in total) due in particular to a fall in investment. Deficitswill be higher than forecast and the return to a balanced budget has been pushed back to after 2020. The debt to GDPratio will exceed 90% of GDP. This leaves little leeway for giving fresh impetus to the economy, however the pound
Week from 18-11-2016 to 25-11-2016 - Macroéconomie et Change 3/20
sterling is resisting this latest bad news well...
PMI indices in the eurozone
Source: Bloomberg, EGM Research
Japanese foreign trade
Source: Bloomberg, EGM Research
In Japan, the recent weakening of the yen against USD is clearly good news for boosting inflation and revitalising exports.Exports were still down 10.3% year-on-year in October, while inflation remains close to zero.
Main indicators and events of the week to come
Source: Bloomberg, EGM Research
OutlookA very busy week. Tension is increasing in the lead up to the OPEC meeting which could unleash dramatic pricefluctuations. There is plenty on the economic agenda: eurozone surveys and inflation, PMIs in China and in particularconsumption, ISM indexes and the US jobs report, even if the markets are now convinced that the Fed will raise ratesin December. The referendum on constitutional amendments in Italy, taking place next Sunday, will also be veryimportant, with the potential departure of Prime Minister M. Renzi and short-term consequences for resolving theItalian banking crisis being at stake. It would be surprising if the euro did not suffer as a result before the end of theweek.
Week from 18-11-2016 to 25-11-2016 - Pétrole 4/20
PétroleUps and downs for Brent ahead of the crucial OPEC meeting onWednesdayThe week began with euphoria when the main protagonists in OPEC informed the markets that there would be anagreement at the end of the month. The Brent barrel gained 3 dollars, rising to around $49/b. The market stabilised at$49/b (Brent) and $48/b (WTI) on Wednesday, the day before Thanksgiving in the United States. Prices then fell again atthe end of the week, with doubts over the willingness of producing countries to reach an agreement resurfacing. Overall,prices varied little across the week, with Brent 1st nearby falling to around $47/b.
Brent 1st nearby prices ($/b)
Source: REUTERS, ICE, Platts, EGM
Production scenarios for OPEC in the event of an agreement
Source: REUTERS, ICE, Platts, EGM, CFTC, Baker Hughes, EIA, IEA
Waiting for the OPEC meeting on 30 November
The week began with OPEC’s technical experts meeting from Monday to prepare the framework of the agreement. Themeeting appears to have gone well and the experts have given their recommendations before handing over to theministers: a reduction of between 4% and 4.5%, with exceptions made for Libya and Nigeria. They have decided to leavethe Iraq and Iran cases to be settled by the ministers. Iraq changed its position during the week, announcing that it wasnow prepared to participate in a reduction in production, even if it still believes that OPEC is underestimating its currentlevel of production. This does not seem to be the case for Iran and Tehran is still seeking to be able to produce over 4Mbd. The Algerian oil minister travelled to Iran this weekend to attempt to soften the position of the Islamic Republic.According to our different scenarios, OPEC production could at best decrease by 3.7% (down 1.3 Mbd) and at worstremain stable overall. Consensus is around 800/1000 kbd. However, the words of the Saudi oil minister have confused thesituation, with the minister claiming that a reduction in output may not be necessary to rebalance the market in 2017. Thisis what caused prices to fall at the end of the week.
Details about non-OPEC producers
The signing of an agreement by OPEC countries remains a precondition for certain non-OPEC producers to take part,Russia most notably. The Azerbaijani oil minister announced that he had has requested a 880 kbd reduction, while theRussian minister, Novak, spoke about a 500 kbd reduction, while repeating that his country wanted to freeze itsproduction. Moscow said that it was working on this matter with Kazakhstan and Mexico but that Oman and Azerbaijancould also be involved. The meeting between OPEC and non-OPEC countries this Monday was cancelled, howeverdiscussions continue via Algeria and Venezuela.
Week from 18-11-2016 to 25-11-2016 - Pétrole 5/20
OutlookCrude oil markets run the risk of responding strongly to statements by countries involved in the negotiations thisweek: pressure will increase until the official meeting on Wednesday in Vienna. It is likely that prices will continue tofluctuate erratically around their 20-day average (close to $47/b currently) before the meeting. Then, an agreementwill lead to a net rebound, probably above $50/b for Brent 1st nearby, but a setback cannot be ruled out and if thishappens, prices will fall very sharply.
Week from 18-11-2016 to 25-11-2016 - Gas 6/20
GasNorth Sea production cut by unplanned outagesCold weather in the UK gave a boost to British gas demand last week (+34 mm cm/day week-on-week) whereas milderweather on the continent dragged consumption down. All in all, consumption in the residential sector dropped by 11 mmcm/day on average last week (-3% week-on-week) for the UK+BE+IT+FR group. Gas demand in the power generationsector was also down by 9 mm cm/day (-5% week-on-week) on in the studied countries.
On the supply side, UKCS production was down from Tuesday (-15 mm cm/day week-on-week) due to several outagesaffecting flows to Bacton Seal, Bacton Perenco, North Morecambe and St-Fergus terminals which triggered an increase inimports from the continent through Interconnector and BBL pipelines (+24 mm cm/day week-on-week). Norwegian supplywas also down on Friday due to two unplanned outages. Russian supply remained strong at 385 mm cm/day on average.
British storage sites switched back to net withdrawal mode to balance the UK system last week. On the continent,withdrawals were slightly down due to lower residential demand. All in all, stocks in the Germany+France+Italy group arein line with last year’s levels on 25 November.
Gas demand by sector in Europe (R-U+FR+IT+BE)
Source: TSOs & ENGIE Global Markets
Storage variations in Europe
Source: TSOs & ENGIE Global Markets
European pipeline supply
Source: TSOs & ENGIE Global Markets
UK LNG sendouts
Source: National Grid
Week from 18-11-2016 to 25-11-2016 - Gas 7/20
Stable prices in EuropeA drop in UKCS production and cold temperatures in the UK kept European spot and near-curve prices stable last weekdespite a period of milder weather on the continent. A rebound in coal and oil prices pushed contracts slightly higher onthe far curve. In the absence of a significant change in fundamentals, traded volumes were particularly low ahead of a keymeeting between OPEC members on 30 November (see Oil section). Only 50 TWh/day were traded on average last weekat the TTF, compared to 75 TWh/day on average in October. NBP day-ahead prices were stable at 46.3 p/th on averagelast week, compared to 46.6 p/th a week earlier. TTF ICE Cal 2017 prices traded above the €17/MWh level for the firsttime in two weeks but closed at €16.868/MWh on Friday, 16 euro cents higher week-on-week.
Month-ahead prices in Europe, in the US and in Asia
Source: Argus, Platts, Nymex & ENGIE Global Markets
TTF prices
Source: Argus & ENGIE Global Markets
In Asia, JKM prices trended lower last week, reaching $7.05/MMBTU (€22.7/MWh) on Friday. Subdued demand fromnortheast Asian buyers following a flurry of buying tenders in previous weeks exerted bearish pressure on spot LNGprices. Prospects of average temperatures In Japan, South Korea and China in December were not supportive as well onthe back of growing production in Australia.
TTF ICE Cal 2017 prices
Source: ICE & ENGIE Global Markets
TTF month-ahead prices vs coal-switching prices (CSP)
Source: ICE, Nymex & ENGIE Global Markets
Week from 18-11-2016 to 25-11-2016 - Gas 8/20
OutlookA drop in temperatures below seasonal norms should drag gas demand sharply higher this week across Europe andsupport spot prices. The ongoing outage at the Heimdal platform in Norway could provide additional support to theprompt if it is prolonged beyond Tuesday (current end date at the time of writing). Nevertheless, the expected returnof closer-to-normal temperatures by the end of the week should keep a lid on spot prices. The uncertain outcome ofthe OPEC meeting planned on Wednesday should be the main driver on the curve this week, as a success or afailure could trigger a significant move in oil prices.
Week from 18-11-2016 to 25-11-2016 - Coal 9/20
CoalSentiment remained unchanged in ChinaSentiment in Asia was almost unchanged last week. Prompt contracts rebounded moderately after earlier losses. Playersin China were heard being still more focused on long-term deals rather than on the spot with weaker price levels due torecent government intervention. The fact that few spot deals are currently struck reflects the fact that buyers believe theyare well-enough supplied for the coming winter weeks. It is also understood that Chinese coal producers have cut theirprices Tuesday again amid growing stock levels in line with .
In terms of price levels, European coal prices moved higher last week. The API2 year-ahead contract was traded atUsd65.22/ton at the close on ICE on Friday, Usd2.55% higher week-on-week.
Coal spot prices
Source : Argus, & ENGIE Global Markets
Coal forward prices
Source : Argus, ICE, & ENGIE Global Markets
OutlookFor this week, the major risk for EU players could come from the foreign exchange market: with the Italian referendumon Sunday, the Euro could lose ground against the USD and weigh up on coal prices for EU players. If the OPECmeeting disappoints on Wednesday (on production cuts), this could weigh down on coal prices in USD.
Week from 18-11-2016 to 25-11-2016 - Power 10/20
PowerGood news on French power but we are far from the end
Prompt contracts softened
Last week, power markets softened moderately as a combination of bearish drivers cooled tensions down. Firstly,temperatures were rather mild and the outlook for the coming weeks still showed temperatures could be close to seasonallevels. Secondly, wind output was strong and even led to negative price levels early last week. Also, strong precipitationswere a bearish driver as run-of-river hydro production ramped up. This was all bearish for French power particularly. Ontop of that, nuclear production increased week-on-week.
At the end of the week, January 2017 and Q1 17 contracts pared part of earlier gains.
In the very short term, spot prices could be higher until the middle of the week. Thereafter, tensions could smoothenagain.
NWE base spot power prices
Source: EEX, Platts, Argus, ECB, ICE & ENGIE Global Markets
French nuclear power peak production
Source: RTE & ENGIE Global Markets
Clean spark spreads suffer from gas strength
The downward momentum took its grip on French power prices last week: the ASN authorized the full and safe return ofSt Laurent-2 after tests were satisfactory (see below). This is an important milestone in the whole process, but does notrule out difficulties to come.
From the middle of past week, gas prices continued to remain supported while coal prices lost ground. Consequently tostrong gas but weaker energy prices elsewhere, clean spark spreads lost some ground recently.
All in all, the DE base year-ahead contract rose to Eur31.29/MWh on Friday, Eur0.32/MWh higher week-on-week. Frenchpower lost Eur3.11/MWh in the meantime to Eur46.50/MWh at the close on Friday. In Belgium and the Netherlands, theCal17 base price were down Eur0.55 and up 0.42/MWh respectively.
Good news on French power but we are far from the end
Power markets received some good news last week. The ASN on Wednesday gave its green light for St Laurent-2(915MW) to restart Nov 24 and EDF started the ramp-up of the plant this weekend. It should now be back to full capacityon December 1. In terms of market prices, this probably helped to push the FR base year-ahead contract below its100-day moving average.
Week from 18-11-2016 to 25-11-2016 - Power 11/20
This also extends the list of 'safe' reactors to 7 and provides a more optimistic picture for later prospects. As from now, 11reactors are still under investigation. EDF provided a file asked by the ASN a week ago which should take a month tocover.
At this stage, we need to remain cautious. Not such a long time ago, EDF and ASN warned of “a purge” being undertakencurrently at French nuclear reactors and that the process could “take one or two years”.
In Germany, the environment ministry - informed by French regulator ASN Friday - announced two further manufacturersmight be involved in nuclear plant component problems. So far, there is no evidence though suggesting German or othernuclear reactors could be impacted. This indeed shows us that the story is far from being over...
Clean fuels costs - Cal17 contracts
Source: EEX, Platts, Argus, ECB, ICE & ENGIE Global Markets
Base Cal17 power prices
Source: EEX, Platts, Argus, ECB, ICE & ENGIE Global Markets
French Baseload calendar prices
Source: EEX, ENGIE Global markets
Week from 18-11-2016 to 25-11-2016 - Power 12/20
OutlookFor this week, we are neutral to moderately bullish. Coal prices in Euro could be higher if the Eur/USD weakens asexpected. While the prompt was softer recently, our view is that it should be rather supportive early this week. On thefar curve, there could also be some moderate uptick in sight in the next days. Prompt prices could be higher andlatest announcements on nuclear power could prevent markets to correct down. The next strong resistance level onFrench base Cal17 is at Eur47.8/MWh. In Germany, the resistance on the equivalent contract is at Eur32.2/MWh.
Week from 18-11-2016 to 25-11-2016 - Emissions 13/20
EmissionsEUA prices back under €5.0/tEUAs resumed a bearish trend last week following confirmation by Great Britain that it would not make any changes to the‘floor’ price for carbon across the channel. This floor price has for a number of years created a ‘support’ for carbon prices,a fixed charge added to EUA prices in Europe that are deemed too low and only applied to the production of electricityfrom fossil fuels: mainly gas and coal. This increase in carbon prices has contributed to a strong reduction in electricityproduction from coal and, as such, emissions. Removing or reducing this tax would thus be a bullish factor for EUA prices.Outside of this bullish factor, EUA contracts have increasingly followed the falls observed in electricity prices and brokenthrough many lower technical support levels. The main bullish factor currently is the increase in EUA volumes auctionedsince January. These will increase by 32% with the end of the ‘backloading’, a temporary measure hastily voted on threeyears ago to attempt to turn around prices on the European CO2 market. Finally, the European Energy Commissioner hasintimated that he may increase the target for energy consumption reduction by 2030 to 30%, up from the 27% statedpreviously. This measure would be structurally bearish for EUA prices as it would mechanically reduce electricity demandand therefore especially emissions from means of production using fossil fuels.
EUA market prices
Source: ECX ICE, ENGIE Global Markets
CER market prices
Source: ECX ICE, ENGIE Global Markets
OutlookThis week, prices may rise slightly, in particular due to the small cold spell in Europe (increasing electricity prices) andtechnical levels (the market may avoid over-selling). The ENVI vote planned for 08/12 on the reform of the EU ETSmay also support the market in the short term. However, these will be short-term factors. Very soon, market pricesshould resume a bearish trend with a target of €4.0/t at the start of next year.
Week from 18-11-2016 to 25-11-2016 - Price Summary 14/20
Week from 18-11-2016 to 25-11-2016 - Contact 15/20
ContactEconomic Research
Head of Economic Research :
Evariste Nyouki
+33 (0)1 56 65 65 21
Economics :
Olivier Gasnier
+33 (0)1 56 65 65 23
Coal and Power :
Paul Raymond
+33 (0)1 56 65 65 22
Oil :
Benoit Guard
+33 (0)1 56 65 44 01
Gas :
Julien Hoarau
+33 (0)1 56 65 44 33
Emissions :
Sandrine Ferrand
+33 (0)1 56 65 65 48
Commercial Team
Week from 18-11-2016 to 25-11-2016 - Contact 16/20
Paris :
+33 (0)1 56 65 68 59
Brussels :
+32 (0)2 336 71 44
Rome :
+39 (06) 3103 2333
Berlin :
+49 (0)30 726 153 561
Prague :
+42 022 6216141
Singapore :
+65 62399438
Week from 18-11-2016 to 25-11-2016 - Glossary 17/20
GlossaryAPI#2 :
the most followed European physical index. It shows the “CIF”• (cost, insurance and freight) delivered price in the ARAregion, which is Europe's main gateway for imported coal.
API#4 :
it shows the “FOB”• (free on board) coal price for deliveries at Richard Bay, South Africa, one of Europe's main importsources.
ARA :
Amsterdam/Rotterdam/Antwerp are common destinations for Northwest European coal deliveries.
Backwardation :
situation where market prices at the start of the forward curve are higher than prices further along the forward curve.
Bearish :
situation where market participants anticipate a downward movement in market price.
Brent :
North Sea oil traded as a benchmark oil on ICE futures in London.
Bullish :
situation where market participants anticipate an upward movement in market price.
CER :
Certified Emission Reductions. Emissions certificates certifying emission reductions achieved by Clean DevelopmentMechanism (CDM) projects undertaken by industrial nations in developing countries.
Clean dark spread :
difference between the market price of electricity and the costs related to coal used to produce that electricity, includingemission costs (“clean”•).
Clean spark spread :
difference between the market price of electricity and the costs related to the gas used to produce that electricity, includingemission costs (“clean”•).
Contango :
situation where market prices at the start of the forward curve are lower than prices further along the forward curve.
EUA :
Week from 18-11-2016 to 25-11-2016 - Glossary 18/20
EU Emission Allowances, or EUAs, are the credits that are allocated to the companies covered by the EU EmissionTrading Scheme (EU ETS). Each one represents the right to emit one tonne of carbon dioxide and are available in limitedamount.
Long :
A long position hold by a market participant means he has purchased a commodity with the expectation that he will sell itlater at a higher price.
Merit Order :
the specified order in which power stations units are dispatched based on their specific, variable generation cost.
NBP :
Natural gas reference related to natural gas traded at the National Balancing Point in the UK. It is the biggest hub for gasspot and forward trading in Europe.
Short :
A short position hold by a market participant means he has sold a commodity with the expectation that he will buy it laterat a lower price.
TTF :
Natural gas reference related to natural gas traded at the Title Transfer Facility operated by GTS, the transmissionoperator in the Netherlands.
WTI :
The West Texas Intermediate is a type of crude oil used as a benchmark in the United States and is often referred to asWTI, Cushing, Oklahoma.
Week from 18-11-2016 to 25-11-2016 - Legals 19/20
LegalsDisclaimer :
This material is intended for information purposes only. It does not constitute either an independent investment research,a personal recommendation or other general recommendation relating to transactions in financial instruments or aninvestment advice.
This material is intended for general distribution, it does not take into account any specific investment objectives, financialsituation or particular needs of any recipient. It cannot be transmitted to any other person without the prior written consentof ENGIE Global Markets.
The information contained herein, including any expression of opinion, is not intended to constitute an offer or a solicitationto buy or sell any financial instruments, products or services, an investment research or an investment recommendation orother financial, investment, legal, tax or accounting advice or any other advice.
Further, all information contained herein has been obtained from and/or is based upon sources believed to be reliable isdeemed to be clear, fair and not misleading but cannot be guaranteed as to accuracy or completeness. The views andopinions, forecasts, assumptions, estimates and target prices reflected in this material are as of the date indicated and aresubject to change at any time without prior notice. The figures that may refer to past performance herein are in no instancean indication of future valuations or future performance. ENGIE Global Markets is under no obligation to disclose or totake account of this document when advising or dealing with or for its customers. Neither ENGIE Global Markets, nor anyof its mother companies (including ENGIE), affiliates, directors, employees, agents or advisers nor any other personaccept any liability to anyone for any direct, indirect, special, incidental, consequential, punitive or exemplary damages(including, but not limited to, lost profits) arising from the use and dissemination of this material or the informationcontained herein.
Nothing in this material is intended for use by or targeted at private customers and retail clients (as defined in the Directive2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments - “MiFid”•).Should a retail client or private customer obtain a copy of this material they should not rely solely on the informationcontained herein to make investment decisions but must seek independent financial advice. ENGIE Global Markets, anyof its mother companies (including ENGIE), affiliates, directors, employees, agents or advisers or any other person shallnot be liable for any use of this material or the information contained herein that could result in any financial losses or intaking any decision to enter into transactions on the basis of this material. Dealing in commodities, financial instruments,derivative products (such as, but not limited to forward, options, and contracts for differences) or other assets involvesspecific risks and other significant aspects. You should not deal in these products unless you understand their nature andthe extent of your exposure to risk. The recipient of this material is strongly advised to seek independent legal or financialadvice before making any investment decisions notably to verify whether such investment decisions meet the recipient'sparticular investment objectives and financial capacities and should not in any case base investment decisions solely onthis document.
ENGIE Global Markets, or/and its affiliated companies in the ENGIE group, may from time to time and to the extentpermitted by applicable law, act on the basis of, or use the information contained in this material, prior to or immediatelyfollowing its dissemination. They may from time to time deal in, profit from the trading of, hold or act as market-makers,advisers or brokers in relation to the commodities, financial instruments, derivative products or other assets mentioned inthis material. ENGIE Global Markets, any of its mother companies (including ENGIE), affiliates, directors, employees,agents or advisers may from time to time have a position in or be holding any of the investments or related investmentsmentioned in this document.
Important notice:
Week from 18-11-2016 to 25-11-2016 - Legals 20/20
The circumstances under which this material has been produced are such that it is not appropriate to define it asindependent investment research as defined in the MiFid. This material should be treated as marketing communication forthe purposes of the MiFid. This material has not been prepared in accordance with the regulatory provisions designed topromote the independent investment research and ENGIE Global Markets is not subject to any prohibition on dealing inthe relevant commodities, financial instruments, derivative products or other assets mentioned in this material ahead ofthe dissemination of this marketing communication. Some of the reasons are that the reporting or remuneration structuresor the physical location of the author of the present material or the fact that the author may take part in customerrelationships may not comply with the legal requirements designed to promote the independence of investment research.
Analyst certification:
This material has been prepared by the economists of ENGIE Global Markets. Each of the authors of this material herebycertifies that the views expressed herein accurately reflect his or her personal views regarding commodities, financialinstruments, derivative products or other assets mentioned in this material and not the views of ENGIE Global Markets orany other employees of ENGIE Global Markets.
Conduct of business:
ENGIE Global Markets is not entitled to conduct business, which may include the dissemination of this material, in alljurisdictions. Some products and services may not be available in all jurisdictions or to all customers. Therefore, adviceshould be sought by the recipient of this material regarding the compliance of any intended investment with any laws orregulations applicable to it before making any investment decision. Neither ENGIE Global Markets nor any of its mothercompanies (including ENGIE), affiliates, directors, employees, agents or advisers or any other person shall be liable inrelation to the dissemination, the possession and the delivery of this material or the information contained herein in anyjurisdiction whatsoever.
Copyrights:
All market data, names and sources that may be included or mentioned in this material may be the exclusive property ofits acknowledged publisher, as identified as the source of the data, and may therefore be protected by international orFrench copyright laws. It is your responsibility to comply with these rules.