Market commentary

August 2020

Corona’s over, isn’t it? That’s the impression we got by watching the stock markets in June. It’s different in July. Nevertheless, electricity prices on the futures market are rising sharply.

The energy world was already at a low price level before Corona. An example: Electricity was traded in Germany in February before the lockdown at just over 21 EUR/MWh (spot market monthly average). Gas has remained well below 10 EUR/MWh in the spot for many weeks throughout Europe. All this is the consequence of the oversupply, which was largely already there before Corona, combined with the significant drop in demand in response to the corona virus. The decline in electricity consumption is between 5% and 22% in the EU member states. Gas consumption has also declined in absolute terms, although gas-fired power stations are currently more economical than coal-fired power stations and thus keep consumption higher. In Austria, for example, only 2% less gas was consumed in the first 5 months compared to the previous year.

The price of oil, the global reserve currency for energy commodities, has become much more expensive since May. Next year, the oil market (Brent) will again cost around USD 45/bbl (Brent). The current price formation on the futures markets for energy is as follows: Political influence on the financial markets, alternating with the publication of information on the course of the pandemic, continues to influence sentiment and expectations. This is because fundamentally, the energy markets remain on the ground and we are seeing the lowest spot market prices in almost all countries in Europe since the beginning of liberalisation (1999). At present, it is easiest to follow the stock exchange indices and, analogously, to observe the bets (= futures market prices) on the energy commodity markets. Corona keeps us in control on the futures market. However, the spot markets for energy show the real decline in consumption and remain low for the time being.
Do you know Asterix? There is a ” Gaulish village ” among the energy commodities that is fighting against the fall in prices: the price of CO2 emissions. After a sharp drop in CO2 prices in spring 2017 to below 5 EUR/t, the demand for emission rights has increased with the legal certainty for the 4th allocation period.


The regulations introduced in the 3rd allocation period will prevent a crash of prices comparable to gas or electricity. From the previous year’s level, 25 EUR/t, prices fell briefly to just over 15 EUR/t, but on 6th April the “Gauls” hit back and the price reached just under 30 EUR/t on 7th July. The Market Stability Reserve, which is skimming off the surplus certificates, will strike (the magic potion of CO2 trading, so to speak), as will the reduction in the allocation of free certificates for companies. And then there is the support of the EU Commission: more ambitious targets for CO2 avoidance by 2030 are called for and higher prices are expected as a result. This is attracting buyers. But who knows what other effects the magic potion and the publication of the benchmarks will have for the industry. But too much magic potion can also have side effects, especially if the pandemic pushes consumption down for longer.
The prices for all energy raw materials (oil, coal and gas) have fallen sharply year-on-year. The gains in CO2 and electricity in recent weeks may also be lost again when the effects of the magic potion have ended. However, the corona virus could once again overturn all expectations and a continuation of the pandemic could cause prices, which are now showing signs of recovery, to plummet again. By mid-July, however, the opposite seems to be the case, and electricity futures market prices are rising like share prices to pre-corona values. Spot is King for those who want it cheap.
Stay healthy, we wish you, as far as possible, a good time and your company success or at least enduring blows. “We’re open for business”.

For the Inercomp team
Felix Diwok