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“At least for now we have a break from the bears”
Things are looking up for Europe’s energy markets. Well, at least in terms of market prices. And at least for this week. Although it would be a very far cry to say any energy markets are bullish, after months and months of steadily falling prices and multi-year lows the direction of travel has turned north.
Even a dead cat bounces, as the saying goes. But the recent upturn in gas, power and carbon prices is based on more than a little post-crash profit taking – fundamentals are shifting and real volatility looks set to return.
In the oil markets, nine months of plunging prices have forced out more expensive production to cut into some of the global glut that forced the falls in the first place.
Similarly, the Dutch government’s decision to reduce domestic production of gas has altered the supply-demand balance to allow European gas prices to recover lost ground despite relatively low demand over the past year.
Tighter supply looks increasingly likely for the carbon market too, with key Brussels-based negotiations seeming set to bring in much-needed reform through the market stability reserve sooner rather than later.
As a result, the UK power price – as measured by the Icis’ Power Index – has returned to the levels seen at the beginning of the year after losing six per cent of its value with declining gas and oil.
No-one is suggesting that the only way is up but at least for now we have a break from the bears.
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