Analysis Energy
Electricity market sets new daily records
Analysts and traders are wary of China's new approach to the oil market. Will China adopt the same strategy as other commodities and how will OPEC react? And then the electricity prices, after a week of high prices, they are still on the rise. Has the top been reached now?
The electricity market has again set new daily records. For the first time in years, the price has not fallen below €100 per MWh on the EPEX Spot listing in the past week. On Sunday 5 September, the electricity price stood at €100,63 per MWh. A day later, the price was again €129,30 per MWh and today (Friday 10 September) a new record has been set with €138,56 per MWh. The hourly prices even hiccuped at some moments at €200 per MWh.
Combination of factors
There are several reasons for the price increases. Now that the holidays are over, the demand for electricity is increasing again, the supply of solar and wind energy is less than normal. Maintenance of the grid means that less cheap electricity can be imported and gas, coal and emission rights have the highest prices in years.
Several analysts see no signs that the electricity price will fall in the short term. The weather reports predict somewhat colder weather for the coming week, but the wind is not picking up. The maintenance of the cables between the Netherlands and Scandinavia will also take a few more weeks.
Nuclear energy sector benefits from green ambitions
The green ambitions, especially the targets to reduce CO2 emissions, improve the prospects for the nuclear sector, at least that is what the World Nuclear Association expects. The organization expects new uranium mines to be put into production quickly to continue to meet demand. Almost all major powers such as the EU, China, US, Japan and South Korea have the ambition to be CO2050 neutral by 2.
The World Nuclear Association expects the capacity of nuclear power plants to be expanded by about a third by 2040. The demand for uranium will grow slightly less strongly, but in the various scenarios the alliance assumes a growth of approximately 12%.
Oil price holds up
There was little spectacle on the oil market last week. On Monday, September 6, a barrel of Brent crude cost $72,10. With some minor swings, the price has risen slightly over the week and now stands at $72,66 a barrel.
China released important news yesterday (Thurs 9 September) for oil prices in the short and medium term. The country announced that it will bring part of the reserves on the local market to control a possible price increase. China's Central Planning Bureau has not released any figures on how much oil Beijing plans to bring to market, but analysts estimate it would be around 37 to 73 million barrels, S&P Global Platts reported.
Tried and tested tactics
China is thus pursuing the same course for the oil market as it had previously chosen for grains and metals. The Chinese government purchases these raw materials in plenty and on time. Part of it is used to build stock. If security of supply is compromised or prices skyrocket, the government can bring these strategic stocks to market to ultimately keep the Chinese economy going. With grains and metals, this tactic works quite well. If the Chinese demand disappears, companies and/or countries are often willing to lower the price a bit in order to regain market share.
Whether this also works for oil is doubtful, according to several analysts. The oil price is actively controlled by OPEC+ in which 23 countries agree on production and price targets. The Chinese oil stock is estimated by data company Kpler at 863 barrels and consumption was approximately 2019 million barrels per day according to The Oxford Institute for Energy Studies in 14 (pre-corona). China thus has a strong negotiating position and can certainly take a stand against the cartel in the short term. But the past shows that OPEC+ often wins over time.
The diesel price has dropped slightly this week. On Monday, September 6, the price was €109,26 per 100 litres. Today (Friday 10 September) the price is €108,53 per 100 litres. The diesel price therefore remains at a high level. Especially if you look at it in relation to the price of crude oil.
Jurphaas Lugtenburg
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