Analysis Energy
Oil and current move in opposite directions
The oil price has fallen slightly this week. Is there a brief market scare to an occasional setback or is something fundamental changing? On the other hand, calm is cautiously returning on the electricity market. Expensive raw materials and disappointing yields from solar and wind energy are only pushing up prices.
The oil price has continued to fall. Last week, a barrel of Brent Crude Oil was still above $70. That has now become $66,04 per barrel. Since the beginning of August, the oil price has already lost 10%. For this decrease, the concerns about the delta variant of the corona virus, disappointing economic growth in the world, China and India in particular, and the announced expansion of the production quotas of OPEC+ countries are pointed out.
The drop in the diesel price in percentage terms is less strong than that of crude oil, but still a nice bonus at €2,50 to €104,79 (Friday 20 August). Prices are therefore returning to the level they were at last May.
Is there a pattern in the oil quote?
In the past, however, it has happened more often that the mood in the oil market completely changes in the second half of the year. The most extreme year was 2008, when the price rose from around $90 a barrel in the first half of the year to nearly $145 in July, before finally dropping below $40 a barrel in the second half of the year.
Naturally, the spillover from the credit crisis, which started in 2007, to the real economy also played a major role in that year. However, this is a pattern that we see more often, for example in 2014, 2015 and 2018. Some analysts even dare to expect the price to fall below $55 per barrel in the coming weeks or months.
monetary policy
The possible termination of the bond-buying scheme by the US Central Bank in mid-2022, on which a decision will be made in September, also hangs over the market as a major factor of uncertainty. No longer stimulating the economy in this way (the effect is more or less comparable to raising interest rates) can be a signal for investors for their high-risk investments. This is the signal to get rid of such investments, including oil. This can have a price-depressing effect on the energy and raw materials market in a broader sense.
Electricity market calmed down but expensive
After an unprecedented price fluctuation, calm has somewhat returned on the electricity market. The EPEX Spot recorded a stable high price this week. The market reached its lowest point of the week on Sunday at €62,16 per MWh. The highest point was yesterday (Thurs 19 August) at €105,39 per MWh.
Cloudy and rainy weather combined with little wind resulted in a limited supply of green electricity. Gas, coal and emission rights have become considerably more expensive in recent times and the utilization rate of conventional power stations is not optimal, which translates into relatively high electricity prices.
For the coming week, there seems to be little change in electricity prices. According to the reports, the weather will be a bit warmer, but stable sunny or windy weather is not possible. As a result, the production of solar and wind energy remains moderate and users are dependent on relatively expensive gray energy.
Making better use of space on the electricity grid
The Netherlands Authority for Consumers and Markets (ACM) wants network operators to make more frequent use of congestion management. This should improve the use of the electricity grid. Congestion management means that grid operators can resolve shortages on the grid by giving producers and consumers of electricity - if necessary - compensation to temporarily reduce the load on the grid. For example, by (partially) scaling down the power production.
According to the ACM, this is a good temporary measure to make extra space for new solar parks and wind turbines during the reinforcements that have to be implemented on the electricity grid. To this end, ACM wants the Grid Code Electricity to lay down more clearly how, when and under what conditions grid managers may apply congestion management.
Jurphaas Lugtenburg
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