Analysis Energy
Oil price dip: correction or trend break?
The oil price has fallen sharply last week. Is this a price correction or do we see a trend break? The electricity market also started with a significant dip, but the price recovered during the week. Furthermore, research shows that investments and sustainable energy are generally more profitable than traditional fossil energy.
The oil price has fallen sharply this week. Monday, March 15, a barrel of Brent oil cost $68,79. That even fell 18% to $7 a barrel on Thursday, March 62,87. At the end of last year, optimism arose that the world economy would quickly recover due to the availability of vaccines against corona. In December, the production restrictions of the OPEC+ countries were added to this. This has driven up the oil price considerably. In the rising market, investors have not sufficiently questioned whether sufficient demand for oil would remain even with higher prices. Several sectors are still suffering from the consequences of the corona crisis.
The price of diesel has fallen less sharply than the crude oil this week. Diesel has become almost €2,50 per 100 liters cheaper. At €101,77 per 100 liters, the price remains above the magical €1 per liter price.
What will the price do?
It is difficult to predict which way the market will go. Analysts see indicators for a further price drop as well as for a price increase. OPEC+ members have kept their production quotas neatly in recent months. These constraints on production could lead to a price recovery. The well-established vaccination campaigns may also lead to a rapid phasing out of the restrictive measures. However, analysts are concerned about the situation in the EU. If the economy starts to grow again as a result, the demand for oil will increase again. Last week's drop in prices is attracting bargain hunters. Especially if the lower price lasts for a few days, investors who try to buy on a dip in a rising market.
The resentment between India and Saudi Arabia is fueling a further fall in the oil price. India is looking for other suppliers due to OPEC+ measures. The country, which is the largest oil importer after China and the US, is seeking to approach Iran for this. Following China's lead, India will also import oil outside OPEC+. In the US, refineries normally perform maintenance in the spring. This coincides with switching from winter to summer fuels. As a result, the full capacity cannot be used during this period and the stocks of crude oil traditionally increase. Large stocks usually have a price dampening effect.
Sustainable investments pay off
Investments in sustainable energy are more profitable than investments in fossil energy. That is the conclusion drawn by Imperial College and the International Energy Agency. The income from investments in renewable energy was 3 times higher than that in fossil energy. To this end, the researchers studied the returns and approvals of listed energy companies over the past decade.
In developed economies, renewable energy investments are generally less volatile than fossil fuel portfolios. In China and the emerging markets, it is exactly the opposite. In the corona crisis that broke out last year, it turned out that sustainable investments fell less in value than investments in fossil energy. The researchers say it is remarkable that despite the good results, investments in sustainable energy are lagging behind.
Recovery in power market
The electricity price plummeted last Saturday (March 13) to €23,01 per MWh on the EPEX spot market. Due to the stormy weather there was a lot of supply of wind energy. Yesterday (Thurs 18 March) the price had risen again to €64,22 per MWh. According to the weather forecast, the wind force will decrease next week. But on the other hand, we are now getting more hours of sunshine. This will partly compensate for the declining availability of wind energy during the day.
Jurphaas Lugtenburg
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