Analysis Energy
Energy market takes a breather
Both oil and electricity prices are taking a step back for a while. That takes some getting used to after weeks of rising prices and, especially in the electricity market, huge fluctuations. And with an article on energy this week, we cannot ignore the UN climate summit (COP26) that starts next Sunday in Glasgow.
Although very large peaks and troughs did not occur in the electricity market this week, electricity remains unprecedentedly expensive. Last Saturday (October 23) the EPEX Spot listing narrowly broke the €200 barrier at €200,81 per MWh. That was also the highest price of the past week. A day later (Sunday 24 October) the lowest price of the week was set at €128,88 per MWh. The windy weather of the past few days in particular has ensured that there was a bit more supply of sustainable electricity, which has kept the electricity price neatly within this bandwidth.
In the coming week, there are few signs of major shifts in electricity prices imminent, according to several analysts. TenneT is shutting down the international connecting station between Doetinchem and Niederhein for maintenance, but that has little effect on international traffic. Temperatures will drop next week and winds are forecast to ease somewhat in the second half. That could lead to slightly higher prices towards the end of the week.
Oil price correction
Oil prices got off to a strong start this week. Brent crude started Monday, October 25 at $85,77 a barrel. That gradually increased to $86,16 as the closing price on Tuesday, October 26. A day later (Wednesday, October 27) the price dropped to $84,09 per barrel. The price has now risen again, but remains below the prices at the beginning of this week at $84,65 per barrel.
The reason that the prices have fallen slightly in recent days is sought by analysts in the figures that the Energy Information Administration (EIA) came with this week. After a few weeks of falling US crude oil inventories, last week rose much faster than traders and analysts had expected, 4,3 million barrels in the EIA report to 1,65 million barrels traded. .
Negotiations with Iran
The other major factor behind Wednesday's oil price drop are rumors of an imminent resumption of negotiations between Iran and the EU over Iran's nuclear program. Earlier this year, negotiations with Iran had already gripped the market. Due to US sanctions, which were introduced after Iran expelled International Nuclear Agency inspectors from the country, Iran is finding it very difficult to export oil. This does happen via a back door construction, mainly towards China.
The resumption of negotiations with the EU opens the door for Iran to regain normal access to the global market. Given the country's large stocks of oil that can be extracted relatively cheaply, it is logical that it will have an effect on the market. But if the trend of last spring and summer is repeated, the oil price will temporarily fall before the start of the negotiations if the talks get a little more difficult to rise again just as easily.
The diesel price is keeping the same trend as the oil price this week. On Tuesday, October 26, the diesel price was at its highest level in years at €121,39 per 100 litres. The price has dropped again, but still remains very solid, namely €119,19 per 100 liters today Friday 29 October.
Climate Summit in Glasgow
The COP31 starts next Sunday, October 26. World leaders have almost two weeks to discuss climate change and negotiate the measures to be taken against it. This summit is expected to be the most important and influential since the COP21 that led to the Paris Agreement. This has consequences for the energy sector, of course, but also for the economy in a broader sense.
The climate lobby is running at full speed and almost daily studies, studies and reports are in the news that call for real measures to prevent further global warming. But several analysts warn: it more than once happens that government leaders with towering ambitions go to a summit, weaken their ambitions somewhat during the summit and would prefer to put everything in a drawer after the summit.
Binding without enforcer
Although a UN climate agreement is legally binding in a formal sense, there is no authority that can take enforcement action if a country does not keep to the commitments made. In addition, the heads of government have to get the population on board and there is not universal support for far-reaching measures. In that sense, it makes sense that there are some skeptical voices left and right.
But it is far too short to say that the summit in Glasgow is nothing. Just to give an example. Environmental organizations regularly bring lawsuits against companies or governments for failing to meet climate targets. Commitments from countries or decisions made in Glasgow can serve as ammunition for new business. For the individual farmer, for example, this is not the immediate greatest danger. The situation is different for large supply companies such as fertilizer and plant protection products manufacturers. Any problems that arise there continue to work in the chain and eventually reach the farmer.
Jurphaas Lugtenburg
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