The energy market is cooling down a bit. The oil price suffered a bit and the electricity price also briefly fell below a level that we have not seen for a few months. Will that be short-lived or will something fundamental begin to change?
The oil price was declining this week. On Monday, November 1, Brent crude oil closed at $84,55 per barrel. Wednesday, November 2, started the day at $84,09 per barrel to close at $81,39 per barrel. The price remained around that level for the rest of the week, reaching today at $81,15 per barrel.
Not the climate summit in Glasgow, but especially the OPEC+ video conference, was followed with excitement by players within the oil world. Several oil-importing countries such as India, Japan and China, as well as the US, urged the cartel in advance to further increase production. This is to slow down the rapidly rising fuel prices and thus curb inflation and not slow down economic growth.
OPEC sticks to planning
In the past, OPEC has sometimes been sensitive to such a plea. Unnecessarily inflating the market until it bursts is not in their interests either. This time OPEC is not going along with that. The outcome of the video conference held yesterday (Thursday, November 4) is that members will stick to the strategy outlined in July and increase production by 400.000 barrels per day in December. "A stable and balanced oil market, with efficient and secure supply to customers, should provide stability in an energy market in which other parts outside the oil sector are experiencing a period of extreme volatility and instability," OPEC writes in an explanation on the website.
The fact that the oil price fell last week is not due to the news from OPEC+. We must look to the White House for the cause. President Biden's administration has signaled that measures may be taken to stabilize oil prices on the domestic market. While this may seem far from encouraging the US oil industry to pump more oil, it will act as a deterrent to trade at least in the short term.
Diesel remains expensive
The diesel price has risen slightly this week. On Monday, November 1, the price was €119,22 per 100 liters. After some cautious fluctuations, the price today amounts to €120,67 per 100 liters. Diesel therefore remains expensive, especially if you compare it with, for example, 2018. In addition to the rising costs for refining that the oil companies pass on in their sales prices, experts attribute this largely to the increasing tax burden.
Peaks and valleys
The electricity price fell below €16 per MWh for the first time since August 75, with €74,11 per MWh on Sunday, October 31. In a few days, that price rose sharply again to €204,09 per MWh on Tuesday, November 2. Today (Friday, November 5) the electricity price has fallen again to €169,29 per MWh.
The reason why the daily price for electricity dropped significantly, especially on Sunday, was mainly the ample supply of wind energy. The less stable supply of electricity from wind turbines did cause significant variations in hourly prices during the week. In the evening, when the wind died down, hourly prices reached their highest level, while a few hours earlier the price dropped due to a large supply.
There appear to be no major changes in the electricity market in the coming days. For the longer term, the coming weeks and months, much will depend on developments on the gas market. Russian President Putin announced last week that he would export extra gas to Europe from November 8. If supplies grow and the winter remains relatively mild, calm may return to the energy market.
Compensation for SMEs
The cabinet announced a temporary reduction in energy taxes on October 15. This measure was taken to alleviate the effects of high energy prices on consumers and SMEs. The government has now included in the package at the request of the House of Representatives to also better compensate SMEs with higher energy consumption, the central government has just announced.
The rate in the first consumption bracket will decrease slightly less than previously proposed and this will be used to further reduce the rates in the second and third brackets. This frees up more money for SMEs. A total of €125 million will be released within the budget of the current package of measures.