Analysis Energy
Oil production rising and large supply of electricity
News of increasing oil production is depressing oil prices this week. Reasonably good economic prospects do not change this. The International Energy Agency (IEA) calls for an immediate end to investing in fossil fuels. And the electricity market is under the spell of the stormy weather.
Last Sunday, May 16, the electricity price on the EPEX Spot dropped to €40,66 per MWh. The fact that electricity prices fall on Sunday is a pattern of recent weeks. Partly due to the large supply of electricity from solar and wind, the supply is more difficult to adjust, while the demand for electricity is lower, especially on Sundays than during the rest of the week. This week's decline is less extreme than last week when the price came in at €7,24 per MWh.
Storm provides supply
On Wednesday 19 May, the price rose to €76,01 per MWh. Due to the strong winds of the moment, the price drops again and stands today (Friday 21 May) at €30,49 per MWh. Expectations for the coming week are uncertain. Due to the long Whitsun weekend and the stormy weather, the price will probably remain below €40 per MWh in the coming days. Most analysts do not dare to make any statements about what happens next.
Climate goals are still achievable
A climate-neutral energy sector is possible in 2050. That is the claim made by the IEA in a statement published on Tuesday 18 May report 'Net zero by 2050: a roadmap for the global energy sector'. According to the IEA, the current climate agreements - even if they are fully met - are not enough to keep the temperature increase within 1,5 degrees. But it's not too late. The path to a global greenhouse gas-free energy sector is narrow and, according to the organization, will require an unprecedented change in how energy is produced, transported and used.
In the report, the IEA calls for an immediate end to investment in fossil fuels and the construction of coal-fired power stations. No new combustion engine passenger cars will be made from 2035 and the electricity sector will be emission-free by 2040. If governments really push through with the energy transition, it could create millions of jobs and stimulate economic growth, according to the IEA. "The energy transition is for and by people," says Fatih Birol director of the IEA in an explanation of the report. "We must therefore ensure that everyone can come along."
Oil dropped
The oil price has fallen slightly this week. On Monday, May 17, the $70 a barrel of Brent crude came into view, but the price eventually stalled at $69,57 a barrel. On Thursday, May 20, oil hit a preliminary low at $64,98 a barrel. Today (Friday, May 21), Brent is trading slightly higher at $65,86 a barrel.
The price rally from late last week and last Monday was mainly caused by speculators and less driven by expectations of more demand or less production. Due to the rumors circulating about an imminent deal between Iran and the US and Russia's planned additional production increase beyond the OPEC+ agreements, traders expect an additional supply of oil. The relatively weak dollar also ensures that the $70 barrier is not broken.
A sharp fall in oil prices is also not expected by most analysts. In the western world, for example, the corona measures are being relaxed and a growth of 2021% is forecast for the Chinese economy in 7,4 with corresponding extra oil demand. In India, too, the consequences of the current corona outbreak appear to be hitting oil demand less hard than previously expected.
Also diesel cheaper
The diesel price follows a similar movement as the oil price this week. Monday, May 17, the price stood at €103,73 per 100 litres. On Tuesday that rose slightly to €104,10 and then today (Friday 21 May) it comes out at €102,50 per 100 litres.
Jurphaas Lugtenburg
© DCA Market Intelligence. This market information is subject to copyright. It is not permitted to reproduce, distribute, disseminate or make the content available to third parties for compensation, in any form, without the express written permission of DCA Market Intelligence.
