Monetary tightening leads to a major banking crisis
Macro & Oil Podcast #31 In this week’s Macro & Oil report of the EnergyScan podcast, Olivier Gasnier tells us about the Silicon Valley Bank…
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The never-ending bullish run of the European power spot prices continued yesterday as the gas market pursued is sharp ascend amid soaring supply concerns while a wind shortage combined with low nuclear availability and stronger demand pushed the prices further up. The day-ahead prices averaged 483.38€/MWh in Germany, France, Belgium and the Netherlands, +74.71€/MWh day-on-day and +227.93€/MWh from the previous week, with prices climbing up to 540.66€/MWh in France.
The carbon prices plummeted by 10% and below 60€/t on Monday morning in another sell-off triggered this time by reports that the sanctions imposed on Russia by the West could now include energy products. The early but significant fall stopped at 58€/t where the EUA Dec.22 hovered for the remainder of the day, before closing at 58.30€/MWh, -6.80€/t from Friday’s settlement. The bearish move was attributed mostly to traders seeking to generate cash for the surging margin calls of the spiking gas and power markets.
The market is now clearly pricing some demand destruction due to the extremely high energy prices and potential economic consequences resulting from the war. It is difficult to determine the remaining length of the speculators, if they have any, and hence the bearish pressure that could come from them, although the next Commitment of traders report due on Wednesday should provide more clarity on this by indicating their position at the end of last week. Despite the very attractive prices and unchanged long-term fundamentals of the market, some selling could materialize on the compliance side if operators consider that they will suffer enough demand destruction to significantly reduce their obligations or simply attempt to raise cash with EUAs for their losses with the intention to buy back the volumes once the conflict ends.
The escalating sanctions on Russia drove the power forward prices further up yesterday, with all short to mid-term contracts posting massive gains once again.