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NORDIC – Front month hits record high on dry outlook

(Montel) The front month hit a contract high on Friday with futures rising for a fourth consecutive day as the dry, hot weather outlook persisted.

The July contract, which expires in the current session, last traded up EUR 0.55 at EUR 47.70/MWh. If spot prices deliver at this level, it will be the most expensive July since 2006. 

In comparison, the German front month last traded at EUR 46.25/MWh, a EUR 1.45 discount to its Nordic equivalent.

“This is weather driven and just confirms the dry and hot weather forecast for the next two weeks,” said Sigbjorn Seland, chief analyst at Storm Geo.
“I think the market has corrected to a reasonable price,” he added, with forecasts showing the current weather pattern would continue to the end of the month with temperatures up to 4C above normal.

Different weather forecasts indicate 0.4-2 TWh of potential hydropower production from rain over the next 10 days, well below the norm of 5.9 TWh, according to SMHI.

Storm Geo said its hydrological balance estimate was close to 25 TWh below normal and could fall to a 30 TWh deficit if the hot, dry spell persisted. 

Bullish pattern
A change in the weather, however, could easily break the bullish pattern, said trader Patrik Aberg at Goteborg Energi, a Swedish supplier.

“Although there is no clear downside in sight, the weather is now fully priced in,” he added. 

Strong fuels prices also lent support, said market participants, with Cal 19 coal in the API 2 window last seen up USD 1.05 at USD 88.75/t.

The Nordic week-ahead contract, meanwhile, was last quoted in a bid-offer range of EUR 48.75-49.50/MWh, compared to Thursday’s close of 48.75/MWh. 

Wind generation is set to be sluggish for the next week, averaging around 1 GW or less, according to SHMI.  

On the spot market, the day-ahead contract was seen in a bid-offer range of EUR 45.30-46/MWh. Montel’s own forecasts predicted a system price at EUR 45/MWh for delivery on Saturday.


Reporting by:
Herman Moestue
12:07, Friday, 29 June 2018