In this week's highlights, as geopolitical tensions continue to inject uncertainty across energy markets, Europe will be hoping to secure assurances on gas supplies as stocks dwindle, while low wind and colder temperatures threaten another spike in spot power prices, and carbon allowance prices are on the verge of breaching 100 euros for the first time.
- Oil market tightness drives steep backwardation (00:23)
- Europe eyes additional gas amid Russia stand-off (01:00)
- Mid-month upside risk for power (01:46)
- Carbon prices hit all-time high (02:23)
In this week's highlights, as geopolitical tensions continue to inject uncertainty across energy markets, Europe will be hoping to secure assurances on gas supplies as stocks dwindle, while low wind and colder temperatures threaten another spike in spot power prices, and carbon allowance prices are on the verge of breaching 100 euros for the first time.
But first to oil, where all eyes will be on whether prices break above 100 dollars for the first time since 2014. This looks increasingly likely given recovering demand fundamentals and concerns over supply, with heightened geopolitical risks around Russia's military build-up on Ukraine's border and recent security incidents in the Middle East.
Across the Brent crude complex, the market structure has moved into one of the steepest backwardations ever seen, indicating a very tight market and a factor that has been changing oil flows and buying and selling behavior.
The ongoing standoff between Russia and the West over Ukraine is also having a big impact on gas markets, raising already elevated concerns over supplies.
Heading into the final months of the heating season, European gas stocks have now fallen below 38% full, helping to keep prices at sustained highs into February.
The EU's energy commissioner Kadri Simson will be holding talks with key suppliers hoping to secure pledges of additional supply, with assurances having already been given by Qatar, but the options are fairly limited in a tight global market.
Whether the remaining stocks in Europe are sufficient to see out the winter will depend to a large extent on the weather in the coming months.
On that front, the outlook is concerning. Weather forecasts for mid-February indicate a colder and less windy period after the stormy start to the month, bringing upside risk to spot power prices. Record wind output last week helped masked the underlying poor performance of France's nuclear sector, where availability is set to fall again as the 2022 maintenance season gets underway. While all the focus has understandably been on soaring gas prices, Europe's shrinking buffer of dispatchable nuclear and coal generation has played an equal part in today's market.
Finally, European carbon markets are eyeing breaking into three digits for the first time ever after allowances on the EU ETS hit a new all-time high of over 97 euros per metric ton on February 4th, as you can see in this chart.
That's almost four times their average price in 2020. Demand was strong in 2021 as high natural gas prices brought coal-fired power plants into the money across Europe, raising CO2 emissions. And the supply side has also been a bullish influence as the EU works to reform the carbon market to help deliver the revamped 55% emissions reduction target for 2030.
And that takes us to our social media question for the week: Will EU carbon prices reach the 100 euros per metric ton this week? Tweet us your thoughts using the hashtag #PlattsMM.
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Thanks for kicking off your Monday with us and have a great week ahead!