EU Energy Pricing Trends - 4 Dec. 2020


Carbon EUAs, closing higher for a fifth consecutive week, lent substantial support to European power prices last week. Unfavourable weather fundamentals extended the gains on short-end contracts, with low wind generation and low temperatures expected across northwest Europe over the weekend. Nevertheless, the economics continue to generate bearish headwinds: weak preliminary Purchasing Managers Index (PMI) figures were confirmed by final readings, with the service sector taking the brunt of the contraction.

Natural Gas

European natural gas prices remained steady for most of the week as the increase in gas demand for heating and generation was met with strong supplies. Increased coal-to-gas switching, encouraged by near-record EUA prices, is adding to the weather-related pick-up in gas demand. However, with consistently strong supplies from Russia, and an expanding LNG delivery schedule, any significant price-rally failed to materialise.

Energy Complex

Carbon EUAs set a fresh 2.5-month high on Friday, surpassing €30/tonne, with an uptick in investments funds’ long positions; indicative of the renewed confidence that EUA prices will be higher next year. Emissions, having fallen sharply this year, are set to return to pre-pandemic levels in 2021 as European economies return to full speed postpandemic. Higher 2021 emissions forecasts come as the EU prepares to enter Phase 4 of the Emissions Trading scheme – during which permit supply will be gradually tightened – and as the market reacts to the delayed 2021 EUA auction calendar.

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