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Warning: No liability for accuracy of data.
Market Comment - June 2019
The crude oil prices seemed to bottom out at the beginning of 2016 at around 30 USD/bbl, in summer 2018 they exceeded 83 USD/bbl (Y+1) and are currently at about 61 USD/bbl (brent months ahead). On the long run oil prices seem to orientate to full costs and the premium for the political uncertainty from December 2018 seems to have disappeared at the moment. The market also believes in a very good supply situation in the coming months. Thus market participants do not expect any scarcity, despite the OPEC taking measures to reduce supply in June 2019.
In parallel the rising coal prices (95 USD/t for Y+1) led to rising power prices on the futures market. Basically it can be stated that energy prices in general experience a price increase, compared to March 2016 and the low price levels of that time seem out of reach. Looking back it can be seen that the combination of factors like favourable exchange rates, low freight costs and low primary energy prices lead to low power prices on the futures market in 2016 which were unique. The current economic situation do not allow a return to this price level of two years ago. At the beginning of June the contract for 2020 trades around 65 USD/t. On the futures market of natural gas (CEGH - Austria, Hungary, Slovenia, Croatia) and NCG (Germany, Czech Republic, Slowakia and Western Austria) the price linkage to oil is still to be seen. Yet, the US gas prices stay unimpressed by the oil price. The gas storage volumes in June 2019 are so well in Europe, that absolutely no scarcity may be derived and spot prices on some days quote around 10 EUR/MWh. The scarcity of 2018 on the spot market lead to the fact that in Europe and Asia LNG is abundant. Due to high coal prices compared to the cas prices the fuel switch (rom coal to natural gas) will get more relevant and we expect that also in the future there will be an increased use of gas in power production.
Despite prices on the electricity market (46,7 EUR/MWh for the front year) prifit margin for coal fired power plants have not risen considerably. The CO2-price levels off at around 25 EUR/t and gas is at an advantage on the spot market compared to coal. In the UK this is the case since long, yet this leads to higher power prices than in Central Europe. LNG prices on the Asian market were so attractive for sellers until October, so that LNG played no role in Europe. That has changed a lot and LNG is being imported to Europe in record quantities. In Japan (JKM) Gas quotes at 15,6 EUR/MWh for July 2019, which is why we expect a longer lasting LNG feed-in into the European grid. Thus, we see chances for a good moment for longterm procurement. And for natural gas resources in Europe are virtually disappearing, imports will have to increase without any increase in demand.
After a collapse of the CO2 prices in spring 2017 to below 5 EUR/t, demand has risen together with legal certainty for the 4th allocation period. Currently prices quote at about 25- 25 EUR/t. How the market will develop weill very much depend on politics concerning for example Brexit or the German Coal Commission. Yet, we expect slightly falling prices, 20 EUR/t are possible.
All in all, we do not expect a return of the prices of any energy commodity to the low levels of the first half of 2016 but neither do we see an increase to the levels of October 2018 in the nearer future. At the same time the high volatility of the spot prices will only slowly decrease. For the development of the power and gas prices the exit from coal and the implementation of the EU directives and the "Clean Energy Package" will be crucial. Also "Fridays for Future" will have effects on the longer run. In the short term we rather expect falling prices on the futures markets, as spot markets quote historically low and the economic situation not really conveys confidence and security.
For your Inercomp Team