Demand expectations cut as Covid lockdowns increase
Wednesday 4th November 2020
Whilst there was generally bullishness across gas and power markets through the second half of October, this sentiment dramatically switched with the announcement of renewed lockdown measures across the UK and continental Europe. Although the demand effect is not expected to be as severe as in the spring, lockdown will undoubtedly bring a reduction in energy consumption, and so costs are down reflecting this, with some power Annuals dropping over 6% and gas up to 8%.
There has been a general downturn in the wider energy complex, with carbon, coal and crude oil all falling as the effects on demand are anticipated. Brent crude has recovered from well below $40 in the last day or so, and may get a further steer depending on which way the US election goes.
Cooler, still weather over the next few days could push Day-ahead prices higher as wind generation drops and domestic heating demand increases.
Asian LNG demand continues to rise as China’s economy quickly recovers post-Covid. This means there is a significant price premium to what Europe is currently paying for gas. As such, LNG producers are more likely to look to Asian markets which may well increase European gas prices in the medium term – a lot depends on the duration and severity of lockdown measures into 2021.