Have energy prices hit a low?

The isolation measures taken to counter the spread of the coronavirus outbreak are leading many industries and businesses to reduce or stop their activity, significantly reducing energy consumption. In France, electricity consumption in the industrial sector is expected to have fallen by around 50% in one week, while consumption in the commercial and public sectors is expected to fall by 10 to 30%, depending on the area of activity.

The demand shock is compounded on the oil market by a supply shock, with the price war between Saudi Arabia and Russia. The production reduction commitments made by producing countries last year will lapse on 1 April next.

As a result, CO2 prices have dropped in one week from 24 to 16 €/t, while Brent crude reached on Wednesday its lowest level since 2003, at less than 25 dollars a barrel. The gas markets also followed this trend, falling to €12/MWh on Wednesday for the 2021 FTT deadline.

For the first time since 2017, the price of electricity in France (CAL 2021 Baseload) fell below the ARENH equilibrium price net of capacity, estimated at €39.5/MWh, closing Wednesday at €37.4/MWh.

The markets seem to have now integrated the short-term consequences of the current crisis and prices for short-term deliveries (Q2 2020) should stabilise. Uncertainty now surrounds whether or not some countries, which have not for the moment taken strict isolation measures (Great Britain, United States, Latin America), will change their strategy, and how long isolation will last in countries that have chosen this path, with the example of Italy showing that the decline of the outbreak may take longer in Europe than in China or South Korea. If strict isolation were to exceed four to five weeks or if the isolation strategies put in place were not to produce the expected effects, the risk of a market prices plummeting would again become significant.