Market Outlook December
It reappears at the end of the year, unasked and seemingly without reason - in various contexts, including the energy market: the ‘year-end rally’. The question arises as to where the impetus comes from and which products in the energy market have been affected by the rally.
December 2024
A look back at December 2023 clearly shows the volatility that is possible on the energy markets in the final weeks of the year. In the last two weeks of last year, for example, the Cal 24 base traded in a range of over EUR 10/MWh. The last trading month for the Cal 25 is also starting very volatile this year: While the quotations for the Cal 25 Base were over EUR 100/MWh on 2 December, they were already trading EUR 6.50/MWh lower a week later.
But where does this unsettled market at the end of the year come from?
Traditional industrial companies operating on the wholesale market should have hedged their volumes and prices, and experience has shown that municipal utilities and distributors no longer schedule their procurement windows for the last few weeks of the year.
This leaves the market participants, some of whom trade speculatively in a market that becomes increasingly illiquid towards the end of the year. A few transactions can lead to large price movements in such a market environment. This can be both an opportunity and a risk for market participants. Ideally, every company should give itself an option to trade in the last few days of the year. However, this should not necessarily be demanded by a procurement plan or a risk manual - it should only be an opportunity to profit from price movements if necessary.
If a spot quantity is also provided for in a procurement plan as part of the procurement strategy, this quantity could be organised flexibly. If, for example, the front year, in this case the Cal 25 base, falls on the last trading days, the company still has room for manoeuvre and can hedge. The spot quantity is then reduced accordingly. Volatility is not limited to electricity, but is also causing a nervous market for gas products and emission allowances (European Union Allowances, EUAs). So far in December 2023, EUAs have ranged between EUR 69 and 80 per tonne.
Outlook
In purely fundamental terms, there are few reasons for a nervous, bullish energy market, although the issue of gas supplies from Russia remains unclear. However, with the prospect of two more LNG terminals coming on stream in January, a comfortable storage situation and a good supply of LNG, the gas market should calm down and return to a risk premium.
With weakening API2 coal prices and an EUA market that is now running out of steam after rallying to EUR 70 per tonne at the end of November, the electricity market can also be expected to see further losses. Electricity spot prices are currently high and are trading at up to EUR 260/MWh in week 50. Nevertheless, in our view they are not sufficient to support the long end.
Support in energy trading
From online access to the relevant OTC or exchange trading centres to daily energy market news: find out more on our website or contact us on 040 668 780 400.
Do you have questions about the balancing energy market? Please get in touch with us!