Is the downtrend in the commodity markets coming to an end?
Fokus week 17 2015
Both oil and coal prices are
rising at the moment and
even though there is still a
way to go to the price levels
observed last summer, this
might be a sign that it is
time to prepare for more
expensive commodities.
Here and now
Forward prices reaching new record lows almost every day
Once more there have been relatively large price falls in the short-term,
weather-dependent contracts, where
new record lows are currently being
reached day after day. At closing time
on Monday, the Q3-15 contract had
fallen to EUR 22.55/MWh, EUR 1.00/
MWh (4.2%) lower than last week,
once again primarily as a result of the
large precipitation volumes. On the
other hand, price developments have
been more stable for the more distant
forwards as there have been price increases in the commodity markets. On
Monday the YR-16 contract was traded at EUR 27.39/MWh, EUR 0.21/MWh
less than at the same time last week.
Thus, it is difficult to predict how far
the price of the contracts will have to
fall before the market will begin to put
a damper on the price falls we keep
experiencing in the Nordic electricity
market. The negative development
appears unstoppable, especially in
the short-term contracts, with price
falls of more than 10% in the Q3-15
contract in April so far. The hydrobalance continues to rise and the
weather forecasts are currently more
than twice as wet as the norm for
this time of year. It will be interesting
to see if things have fallen so much
Our recommendation
Last week we experienced how the
YR-16 and YR-17 contracts failed
to follow the price drop in the immediate forward contracts. The uptrend in the oil and coal markets was
stronger but only to such an extent
that the contracts remained neutral.
Nevertheless, there is reason to believe that the price increases in the
commodity markets will continue and
this could very well result in more
expensive annual contracts ahead.
that an isolated trough of high
pressure or a few high spot prices can
bring about a noticeable upward surge
in prices. For the time being, there
are almost daily reports about the
lowest closing price ever for the Nordic
system forwards. However, it is worth
noting that the long-term contracts
(YR-16 and YR-17) are no longer falling
to quite the same extent. Over the last
week, higher commodity prices have
contributed to dampening the price
falls, even if these contracts also
closed at new record lows on Monday.
Forward
Week 16
Week 17
Difference
ENOMMAY-15
EUR 23.50/MWh
EUR 22.70/MWh
EUR -0.80/MWh
ENOQ3-15
EUR 23.55/MWh
EUR 22.55/MWh
EUR -1.00/MWh
ENOYR-16
EUR 27.60/MWh
EUR 27.39/MWh
EUR -0.21/MWh
SYHELQ3-15
EUR 9.80/MWh
EUR 9.55/MWh
EUR -0.25/MWh
SYOSLQ3-15
EUR -2.58/MWh
EUR -2.48/MWh
EUR 0.10/MWh
Substantial increases in the oil price
Forecasts
Precipitation: The weather forecasts are once more very wet
and up to 5.0 TWh more precipitation than the norm is expected over the next ten days. There
are indications of drier weather after this, but as always,
weather forecasts become more
uncertain once the ten day limit
has been reached. The wettest
days are expected to be this
coming Sunday and Monday.
The last week has offered significant price increases across the global oil markets, which are now at their highest level since the beginning of December. The
news about a significant weakening of American shale oil production was the
primary reason for the monthly forward for Brent oil rising by more than USD
5.50/bbl in just two days. The general mood in the market currently indicates
that the prolonged downtrend that resulted in the Brent prices decreasing by
nearly USD 70/bbl over a period of about six months is coming to an end and
that prices may continue to rise in the coming months.
Positive signals in the coal market
Production and spot: The Nordic
system price has remained stable at around EUR 25/MWh for
the last week, which is slightly
higher than the previous week.
The expected wind power production for the coming week will
be around the seasonal norm
with the next couple of days
being the windiest.
The CfDs
For the first time in a while there
was a small price increase in the
Q3-15 CfD for Oslo (NO1), which
closed at EUR -2.48/MWh on
Monday, EUR 0.10/MWh higher
than at the same time last week.
The Finnish CfD fell by EUR
0.25/MWh to EUR 9.55/MWh.
While developments are not as clear as for oil prices, there are also signs of improvement in the beleaguered coal market, in which producers have had to contend with very limited demand for months. During week 15 and 16, the API 2 contracts increased for all of six days in a row as a result of issues with supply from
both Russia and Colombia. The price increases may continue in the next couple of
weeks. However, whether or not we are heading for a period of a prolonged uptrend
as experienced in the oil markets is a more debatable issue. The issues of weak
demand, in particular from China, are still too dominant for this to be the case.
Sales Manager
Peter Lehm
([email protected])
Telephone: +45 8742 6720
Communicative Analysist
Karsten Sander Nielsen
([email protected])
Telephone: +45 8745-6948