News / Brent crude oil plummets on Black Friday

Brent crude oil plummets on Black Friday

For a summary of weekly changes in the energy market, read Haven Power’s market report. Here’s what happened over the last 7 days, starting 19th November:

  • UK’s continental exports made the system tight (i.e. little margin existed) on 22nd November.
  • National Grid paid generators to reduce output.
  • Coal was generating close to full capacity.
  • Brent Crude Oil price plummeted during ‘Black Friday’ (23rd).
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Prompt/Day-ahead Power

For the first half of week 47, wind output steered day-ahead baseload power prices. On Thursday 22nd, the UK system was so ‘tight’ (with little margin, since supply and demand were almost matched) that the price of the day-ahead market increased.

The lowest price for baseload power for the day-ahead was for delivery on 20th November, when strong wind generation was forecast. A revision in weather forecasts for the end of November triggered a bearish market response; prices dropped as the market sold power and gas with the expectation of lower demand. The drop in prompt gas prices, plus the forecasts of high wind output, combined to take around 5% off the day-ahead power price.

Prompt prices then soared over the following couple of days, with wind output expected to fall dramatically during the afternoon of Wednesday 21st. The highest price for the week was for delivery on Thursday 22nd, when cold weather and rising European power prices pushed up UK prompt prices. Cold weather and plant outages have increased prices in European markets, with the UK exporting power to take advantage of the rise. This resulted in a tight UK system on Thursday, adding further premium into this country’s prices.

2018-11-26 pricingreportgraphs1

Imbalance Prices

Relatively high wind output at the beginning of the week caused negative imbalance prices for two settlement periods. The system tightness that developed later in the week caused a noticeable price spike.

The final price of -£50/MWh for settlement period 8 (03:30-04:00) on 19th November was the joint lowest of the week. High output from wind generators (35% of the generation stack) meant that the UK had more generation than it needed. The final price was set when National Grid accepted Immingham Combined Heat and Power (CHP) plant’s bid to reduce generation. The System Operator also accepted several other negative bids (some up to -£152/MWh) from generators that receive a subsidy payment for every MWh generated.

The highest imbalance price during week 47 was £169.27/MWh for settlement period 34 (16:30-17:00) on 22nd November (the day the UK system was incredibly tight). The system had been short for most of the day in the run up to settlement period 34. The final price was set by a combination of accepted offers, ranging from £245/MWh to £334/MWh, to increase generation output.

2018-11-26 pricingreportgraphs3

Renewables and other

Output from wind installations was high from the morning of 19th November, but then rapidly declined during the afternoon of 21st November.

Wind output reached 13.2GW on 20th November, when it was contributing 29% of the generation stack. Despite this high level, there was still over 5.5GW of coal-fired generation and over 17GW of gas-fired generation on the UK system at the same time. This was likely due to strikes at French nuclear plants tightening supply in the French market, which reduced the amount the UK could import via the interconnectors.

On the afternoon of Thursday 22nd, coal-fired generation was supplying up to 9GW to the grid - probably almost all of the available coal capacity.

2018-11-26 pricingreportgraphs4

Seasonal Contracts

During a generally bearish week of trading, secure and promote* (Seasons +1, +2, +3, +4) baseload contracts closed the week almost £0.70/MWh below where they’d opened on 19th November.

The most significant movements of the week were due to the falling price signals coming from the National Balancing Point (NBP) gas curve and decreasing Brent Crude Oil prices. The oil benchmark lost 5% on Tuesday 20th, so it was trading at its lowest level since February 2018. Further bearish sentiment came on Thursday 22nd, with expectations of warmer weather and the system oversupply both weighing on the natural gas curve (despite the tightness in prompt power). Oil drove prices down again on Friday 23rd, when the benchmark’s sharp losses (dipping below $60/bbl. for the first time in over a year) pressured longer-dated gas and power products. The dip in Brent Crude Oil prices is evidence of an oversupplied market.

2018-11-26 pricingreportgraphs2

Annual Power

The annual power graph shows how the value of an annual power contract changes over time. The annual contract value is the average of the front two seasons, currently Summer 19 and Winter 19.

2018-11-26 annual-prices

To help you make sense of the industry, you can also use our jargon buster and handy guide to Third Party Costs (currently 60% of your bill). And for interesting articles and useful insights, look out for our blog.

Report written by Thomas Stebbings and Ben Symonds, Haven Power’s Portfolio Analysts. To speak to them, or the rest of our Flex & Portfolio Management team’s analysts, on 01473 707755 quoting reference HP250.

Disclaimer

Although we’ve made all reasonable effort to verify the information in this report and provide the highest possible accuracy, Haven Power Limited gives no warranty - express or implied - in respect of this information. Furthermore, our provision of this report does not constitute advice of any kind and readers should not take it as the basis for any commercial or financial decisions. You should make any such decision based on your own records, knowledge and perception of power market data, supplemented with appropriate independent expert advice when required.