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SEB Jordbruksprodukter, 26 augusti 2013

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SEB Veckobrev med prognoser på jordbruksråvaror

SEB - Prognoser på råvaror - CommodityI detta första veckobrev efter sommaruppehållet går vi över till neutral på vete och majs, men behåller sälj på soja och raps. Raps har rekylerat upp och vi tycker man ska sälja terminer omedelbart. Vetemarknaden lider av nyhetstorka. Skörden av höstvete är klar på hela norra halvklotet och den har varit bra. Det finns inget mer ”ont” som kan hända skörden och inget extra gott heller. Då det inte finns några nyheter som kan ändra bilden, finns heller inte något som kan driva priset uppåt eller nedåt. Från Ryssland, varifrån information bitvis kan vara svårtolkad, kom dock information i veckan som gick. Den 14 augusti justerade den ryske jordbruksministern Nikolaj Fedorov ner produktionsestimatet för spannmål från 95 mt till 90 mt. Han anser att exportpotentialen är 18 – 20 mt. Hittills har 4 mt exporterats, jämfört med 3 mt samma tid förra året. Upp till 80% av den här spannmålsexporten utgörs av vete.

Tendens för jordbrukspriserI övrigt är det från den amerikanska majs- och sojaskörden som informationen kommer. Den informationen påverkar marknaderna för raps och vete via den substitution som finns.

Pro Farmers crop tour avlöpte i veckan som gick. I tisdags var den i Indiana och den var åt det positiva hållet. Delstatens majs och sojabönor såg bra ut. Den estimerade avkastningen för majsen var 167.36 bu/acre, baserat på 180 stickprov. Förra året estimerade touren avkastningen till 113.25 bu/acre. Det treåriga genomsnittet är 141.14 bu/acre.

Soybean pod count, beräknad inom en 3 x 3 fots kvadrat, var 1,185.14, baserat på 175 stickprov. Förra årets tour uppmätte 1,033 pods och det treåriga genomsnittet är 1,136. I Iowa var det sämre ställt med sojabönorna. Typiskt sett var det bara 3 – 4 bönor per balja, mot normala 6 – 7. Illinois var också en negativ upplevelse. Marknaden tar säkert fasta på detta i det korta perspektivet.

Odlingsväder

Det blev ingen La Niña i sommar, inte ens lite grand. Ensembleprognosen visar att det inte blir någon under sommaren på södra halvklotet heller.

Poama, prognos på odlingsväder

Nedan ser vi andelen av USA som är drabbat av torka. Den övre kurvan visar andelen som är drabbat av någon form av torka och den nedre visar den andel som är drabbat av de två värsta formerna av torka, ”extrem” och ”exceptionell”.

USA drabbat av torka

Som vi ser har torkan ökat från slutet av juli i USA, men inte den extrema varianten.

Nedan ser vi 15 dagars prognos för avvikelsen i nederbörd mot det normala i Nordamerika, enligt GFSmodellen.

Nederbörd för jordbruk i USA

Vi ser att det kommer att vara torrare än normalt i präriedelen av Mellanvästern och i South West. Det kommer också att vara varmare än normalt. Man kanske instinktivt tänker att detta inte är bra (priser upp). Men värme gör att sent sådd majs och soja mognar snabbare och detta är positivt. En omogen och sen skörd är inte bra för avkastningen heller.

Vete

November vetet på Matif har funnit tekniskt stöd vid 180 euro per ton. Om man frågar vem som helst i branschen vid vilket pris vetet bör ligga (som lägst) är svaret ”180 euro per ton”. Det amerikanska vetet handlas dock lägre än så, som man kan se nedan, om man räknar om priset till euro per ton. Kanske är ”180 euro per ton” bara något som bara finns i folks medvetande.

Regn i Tyskland har gjort att organisationen DBV varnat för proteinnivåerna i veteskörden, men stöder annars DRV:s estimat på veteskörden om 23.9 mt.

Vetepris, CAX3 commodity

Decemberkontraktet på CBOT stängde i fredags på 646 cent per bushel. Det motsvarar 1500 kr per ton, eller ca 165 euro per ton.

December 2013-terminen på vete på CBOT

Nedan ser vi terminskurvorna för Chicagovete och Matif-vete per den 1 juli och nu, omräknat till priser i euro per ton. Notera att det inte riktigt finns något contango (terminspåslag över spot) i Matifmarknaden. Notera också det mycket lägre priset för ny skörd 2014/15 på Matif! Det här är orsakat av fel i data. Det finns ännu ingen handel på den löptiden.

Terminskurvorna för vete på de olika börserna

Vi tror att det finns ytterligare nedåtpotential i Matifvetet, men eftersom det inte finns något nyhetsflöde, kan denna justering bli trög, eller helt utebli. Vi går därför över till neutral rekommendation.

Det finns de som nu tänker lagra sin spannmål och som jag visade i boken ”Bättre betalt för skörden -riskhantering för lantbrukare”, finns ett contango i Chicago-marknaden som kan ge en lönsamhet. Historiskt har det ingen bra idé att lagra spannmål utan prissäkring, ens om den är ”billigare” än den varit tidigare.

Maltkorn

Maltkornet har fallit rejält – även i förhållande till vetet. För ölälskaren finns dock smolk. Tysklands skörd av humle är 40% mindre än normalt, rapporterade DBV förra veckan.

Maltkorn, CAX3 commodity

Majs

Majspriset (december 2013) steg initialt förra veckan på den allmänna rekyl uppåt som noterats i flera råvarumarknader som t ex guld, basmetaller och råolja, men föll sedan tillbaka. Det tekniska motståndet (inritat som röd horisontell linje i diagrammet nedan) höll. Idag, måndag gör marknaden ett nytt test av nivån. Ett brott uppåt skulle kunna ta priset till ca 500 – 516 cent per bushel.

Prisutveckling och gratis teknisk analys på majs

Den observante läsaren minns kanske analysen i det här veckobrevet av WASDE-rapporten i maj. Där skrev vi att majspriset troligtvis skulle gå till 400 cent / bushel mot bakgrund av att lagren väntades öka till en nivå där 400 cent / bushel historiskt sett varit det normala. 450 cent är ur en risktagares perspektiv ”nära nog”. Den som är girig och vill hämta hem den allra sista pengen, kan gå miste om allt, så vi lämnar vår säljrekommendation och går över till neutral rekommendation.

Väderleksprognoserna visar fortsatt varmt väder i USA, vilket spontant kan tolkas som negativt. Efter ProFarmer crop tour, som påminde om att sådden skedde sent, kan värme dock tolkas som positivt, eftersom det gynnar tillväxten och skyndar på växten och minskar tiden till mognad och skörd.

61% av majsskörden är i ”good” eller ”excellent condition”, vilket är lite lägre än veckan innan.

Terminspriser på majs

Som nämnt ovan går vi alltså över till neutral rekommendation.

Sojabönor

Sojan har handlats upp rejält och bröt idag måndag det tekniska motståndet. Mycket av rörelsen är redan avklarad. 1400 cent per bushel är ett starkt motstånd och den ”flagga” av sidledes konsolidering som skedde kring 1300 cent, som brukar uppträda halvvägs i en rörelse, visar att prisuppgången nu praktiskt taget är klar. Det är ungefär lika långt från början av rörelsen (1200) upp till flaggan (vid 1300) som det är mellan 1300 och där priset är nu (nästan 1400).

Prisutveckling och teknisk analys på sojabönor

62% av sojaskörden i USA är i ”good” eller ”excellent condition”, vilket är lite lägre än veckan innan, men väsentligt högre än genomsnittet för åren 2009 – 2013. Det ser ut att kunna bli en bra skörd. Däremot kommer säkerligen den förnyade torkan att ytterligare sänka crop rating i kvällens rapport. Kanske ner mot 61% eller 60%.

Prisutveckling på sojabönor

Slutsatsen, då uppgången troligtvis är avklarad till stor del, är att vi väljer en säljrekommendation, snarare än en neutral-rekommendation.

Raps

Rapspriset lär öppna upp idag på Matif. Rapspriset (November 2013) har rekylerat uppåt mot 380 euro per ton. 55-dagars glidande medelvärde, som många tittar på ligger strax ovanför. Sammantaget ger detta bilden av en marknad som har sträckt sig så långt uppåt som den kan just nu. Den huvudsakliga trenden är nedåtriktad och vi har sett EN rekyl uppåt, den som pågått sedan början av augusti. Det handlar med största sannolikhet om en rekyl och när den är färdig, bär det av nedåt igen. Det är ett säljläge just nu!

Rapsprisutveckling

Stats Canada rapporterade i förra veckan en estimerad produktion på 14.7 mt. Det är 22% större än förra årets skörd.

Säljrekommendation på raps just nu alltså – köp av BEAR RAPS X4 S

Potatis

Jag brukar inte skriva om potatis, eftersom det aldrig varit någon som intresserat sig för prissäkring av potatis. Potatismarknaden är igång en kort period varje år, mellan oktober och april, ungefär. Korrelationen mellan det tyska kontraktet nedan och svensk matpotatis är mycket hög, ungefär 0.8 på årsbasis, mellan år.

Prisförändringar sker under sommaren. Så har skett även i sommar. Eftersom det varit perfekt semesterväder, har det inte varit bra för potatisen, vare sig i Tyskland eller Sverige (hög korrelation på semesterväder i Tyskland och Sverige). Det har fått priset att gå upp från 16 euro per deciton till 20 – 22 euro per ton för leverans i april nästa år, dvs för årets skörd. Kul för de producenter som aldrig brytt sig om att prissäkra. Mindre trevligt för köpare. Nästa år kan det gå åt andra hållet.

Utveckling för potatispriset under 2012 och 2013

Gris

Lean hog, som tycks vara lite av en ledande indikator för de tyska grispriserna, har rasat med 15% i augusti. Eurexpriserna har däremot fortsatt upp och ligger nu på 1.85 euro per kilo för ”spotleverans”.

Olika utveckling på grispriser

Mjölk

Botulism-bakterier har påträffats i Nya Zeelands mjölkindustri, vilket antagligen beror på otur i en mycket omfattande näringsverksamhet. Detta medför dock att ”spreaden” mellan Fonterrapriser och Eurexpriser går ihop. Det har påverkat Eurex SMP positivt. Det är allmänt positivt för svensk mjölk.

Foderpriserna har fortsatt att falla under sommaren, som vi sett ovan. I våras var bilden klar att de kommande åren kommer att innebära goda priser på mjölk och i synnerhet väsentligt lägre priser på proteinfoder och spannmål. Den här bilden har fortsatt att stärkas.

Mjölkprisutveckling

Socker

International Sugar Organization, baserad i London, publicerade sin senaste kvartalsrapport i torsdags (22 augusti). Enligt den kommer marknadsföringsåret 2013/14 (som löper från oktober till september) att bli det fjärde året med högre produktion än konsumtion på global basis. Sockerproduktionen väntas överstiga konsumtionen med 4.5 mt under 2013/14. Det är 1 mt högre än förra månaden, när organisationens estimat på överskottet var 4.5 mt. Innevarande år, 2012/13, är överskottet estimerat till 10.3 mt. ISO sade att ”It seems that a lower global surplus per se cannot be treated as a price supportive factor and the market may record further losses during the 2013/14 season”. ISO estimerar att global produktion faller med 1.2% till 180.8 mt. Det är den första minskningen sedan 2008/09. Efterfrågan ökar samtidigt med 2.1% till 176.3 mt. Detta innebär att globala lager ökar med 0.5% till 74.4 mt vid utgången av 2013/14 (sista september nästa år), men lager i förhållande till konsumtion minskar faktiskt från 42.9% till 42.2%, enligt ISO.

De låga priserna har alltså haft en effekt på produktionen, huvudsakligen där betor odlas, eftersom detta till skillnad från sockerrör är en ettårig växt. Ukrainas produktion väntas av ISO minska med 21% till 1.9 mt.

Indiens produktion väntas också minska, men i Brasilien väntas produktionen faktiskt öka med 2% till 41.1 mt. Både Indien och Brasilien bedriver ekonomisk politik som är oekonomisk med fallande valuta som följd. Produktion och export av jordbruksprodukter blir då en uppenbar källa till inkomster för Brasilien. Indien har däremot ett ineffektivt regelverk, som inte stimulerar på samma sätt.

Råvarugurun Jim Rogers nämnde socker som en intressant råvara att investera i, i en intervju i Economic Times förra veckan. Nedan ser vi prisutvecklingen på socker (cent per pund) de senaste 30 åren. Vi ser att prisnivån 15 cent tycks vara en nivå som ömsom varit ett motstånd och ömsom en stödnivå.

Prisutveckling på socker 1984 till 2013

Det senaste årets kursutveckling för spotkontraktet ser vi nedan. Marknaden gjorde ett test av en motståndsnivå i mitten av augusti, men rekylerade tillbaka. Ett brott av den motståndsnivån skulle ge oss en köpsignal och en anledning att köpa BULL SOCKER X4 S eller SOCKER S, om man inte vill ta så mycket risk.

Sockepriset år 2012 - 2013

Vi fortsätter med neutral rekommendation.

Gödsel

Den internationella potash-kartellen (kalium) föll samman i slutet av juli. Den direkta konsekvensen tycks mest ha påverkat producentbolagens aktiekurser. ”POT” föll från 38 dollar till 30 på ett par dagar. Vi ser kursdiagrammet nedan:

Prisutveckling för potash (kalium)

För Yara, som är ett bolag som köper kalium för gödselblandningar hade detta ingen effekt – om någon, något positiv (aktien gick upp lite, efter några dagar). Däremot tycks inte priset på kalium ha påverkats – än – som vi ser i prisdiagrammet på kaliumklorid nedan (standard grade, fob Vancouver, spot price) i USD/ton.

Prisdiagram för kaliumklorid

Med fallande priser på spannmål har priset på urea fortsatt att falla. Nedan ser vi priset på urea FOB Yuzhnyy, 1 månads termin, i dollar / ton.

Gödselpriset

[box]SEB Veckobrev Jordbruksprodukter är producerat av SEB Merchant Banking och publiceras i samarbete och med tillstånd på Råvarumarknaden.se[/box]

Disclaimer

The information in this document has been compiled by SEB Merchant Banking, a division within Skandinaviska Enskilda Banken AB (publ) (“SEB”).

Opinions contained in this report represent the bank’s present opinion only and are subject to change without notice. All information contained in this report has been compiled in good faith from sources believed to be reliable. However, no representation or warranty, expressed or implied, is made with respect to the completeness or accuracy of its contents and the information is not to be relied upon as authoritative. Anyone considering taking actions based upon the content of this document is urged to base his or her investment decisions upon such investigations as he or she deems necessary. This document is being provided as information only, and no specific actions are being solicited as a result of it; to the extent permitted by law, no liability whatsoever is accepted for any direct or consequential loss arising from use of this document or its contents.

About SEB

SEB is a public company incorporated in Stockholm, Sweden, with limited liability. It is a participant at major Nordic and other European Regulated Markets and Multilateral Trading Facilities (as well as some non-European equivalent markets) for trading in financial instruments, such as markets operated by NASDAQ OMX, NYSE Euronext, London Stock Exchange, Deutsche Börse, Swiss Exchanges, Turquoise and Chi-X. SEB is authorized and regulated by Finansinspektionen in Sweden; it is authorized and subject to limited regulation by the Financial Services Authority for the conduct of designated investment business in the UK, and is subject to the provisions of relevant regulators in all other jurisdictions where SEB conducts operations. SEB Merchant Banking. All rights reserved.

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Analys

The self-destructive force of unregulated solar power

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SEB - analysbrev på råvaror

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Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Solar and wind power production has increased rapidly over the latest years as LCOE costs have fallen sharply while government support schemes have given it an extra boost as well. Solar and wind power production is totally unregulated supply. They produce whenever they produce. Fossil power supply on the other hand is fully dispatchable to the degree that we tend to take it for granted. As such we have naturally tended to underestimate the consequences of not having dispatchability in solar and wind power.

When you start out with a large, fossil-based power system it is fairly easy to add unregulated power supply from solar and wind because it can piggyback on the dispatchability and flexibility of the fossil power system. But as the share of unregulated renewable energy rises to a larger and larger share of production, the flexibility in the fossil part of the system naturally gets smaller and smaller. This problem is accentuated further  by the fact that solar power production has a very high concentration of production where 80% of production in a year is produced in only 20% of the hours in the year. Thus fossil flexibility and dispatchability is eroded much faster during these 20% hours.

Power prices typically collapse to zero or negative when demand is fully met or saturated by unregulated power supply. That again implies that solar power profitability collapse as well. And the result of that of course is that the exponential growth in solar power production which we now take for granted and which we expect will lead us all the way to zero emissions could come to a full stop as well.

This is already a rapidly increasing problem in California where more and more renewable energy is denied access to the grid because there simply isn’t enough demand for it just then or because the grid cannot handle it. But it is also becoming an increasing problem in Germany where the strong growth and high concentration of solar power increasingly is destroying the power prices just when they produce the most.

The need for biiiig, cheeeeap grid batteries are now becoming increasingly critical for the the exponential growth in solar and wind power to continue.

We fear that the self-destructive force on power prices, of exponential growth in unregulated solar power, is some kind of Solar-hara-kiri process with respect to its own profitability. And that it has the potential to develop along a curve of ”first gradually, then suddenly”. And when/if that happens the exponential growth in unregulated solar power production should naturally come to a screeching halt.

The resolution of the problem is of course the eventual arrival of biiiig, cheeeap grid batteries which then again will sett solar power production free to resume its exponential growth. 

Feeding solar and wind power supply into a fossil system is easy to start with. Then very difficult. It is easy to build unregulated solar and wind power supply into a flexible fossil system. It is easy to infuse unregulated power supply (Solar and Wind) into a power system where there is lots and lots of fossil based power. Fossil supply can then back-off and make room for solar and wind power whenever the sun is shining or the wind is blowing and then ramp up again when it suddenly disappear.  But when unregulated, renewable energy supply keeps growing it becomes harder and harder to infuse yet more of it into the system as the fossil flexibility is increasingly eroded. That’s when yet more supply of solar and wind is no longer pushing aside fossil supply but instead is starting to destroy their own prices.

Solar power produces 80% of its production during 20% of the hours in the year. Solar power has however a much more tightly focused production profile than wind. In Germany in 2023 some 80% of all solar power production was concentrated on only 20% of the hours of the year. For wind power the 80% share of production was spread out over 50% of the hours in the year. The reason is of course that the wind can blow both summer and winter and night and day. Solar power is instead focused during the day and during summer. It has a much higher concentration of production.

Power prices tend to collapse when demand is fully covered by unregulated power supply. When solar power production grows rapidly in a given power system then its high production concentration will eventually lead to full saturation during certain hours of the year. Demand during these hours will then be fully supplied and covered by unregulated power like solar, wind, run-of-river hydro and other unregulated supply. That is great as it means that the fossil share in these hours then are close to zero.

The problem is that power markets, more than any other commodity market in the world, are extremely sensitive to imbalances in supply and demand. A little bit too little supply and the power price can spike up to close to infinity. A little bit too much supply and the price crashes to zero or negative.

When unregulated power supply reaches full demand saturation during certain hours then power prices tend to collapse because it is so easy to get a little bit too much supply.

It is not a problem when power prices collapse for just a few hours per year. But the number of hours affected is growing rapidly many places. The US EIA highlighted in October 2023 (”Solar and wind power curtailments are rising in California”) that this is becoming a bigger and bigger problem in California. Since 2019 the power system operator there has been forced to curtail supply of unregulated power more and more. There simply isn’t enough demand in certain hours to meet the spikes in unregulated supply or the grid isn’t up to the task of distributing the unregulated supply in the system.

So when producers of unregulated supply produces the most they increasingly are denied access to sell it into the grid or if they are allowed to sell it into the grid the price is close to zero or even negative.

US EIA: Solar and wind power curtailments are rising in California

US EIA: Solar and wind power curtailments are rising in California
Source: The US EIA in October 2023

Germany is increasingly affected as booming solar production is depressing prices more and more. This is now also a rapidly increasing problem in Germany where rapid growth in supply of solar and wind power together increasingly are forcing power prices lower just when they produce the most.

Average German power prices for hour 1 to 24 for certain periods and years. Highly concentrated supply of solar power during summer and during the day is increasingly forcing power prices towards zero during these periods

Average German power prices for hour 1 to 24 for certain periods and years
Source: SEB calculations and graph, Blbrg data

It is like ”Solar hara-kiri” when increasing supply of solar power is killing its own prices and profits. It was not a big problem economically when only a few hours are affected. But as more and more hours are affected it is becoming an increasing problem. It is like ”Solar hara-kiri” where rapidly rising supply of solar power is increasingly killing its own prices. With that it is killing its profits. And if profits are killed than new-build and growth in supply will typically slow down rapidly as well. 

This is probably not a big problem globally yet as the global power system is still predominantly fueled by fossil fuels which can back off when renewable energy spikes up. But in certain pockets of the world where penetration of unregulated power supply has reached high levels it is becoming an increasing problem. Like in California and in Germany.

The volume weighted solar power price in September 2023 in Germany had a 38% discount to power prices during non-solar power hours. And the discount looks like it is rapidly getting bigger and bigger.

The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile. In Germany in September 2023 solar power producers only achieved 62% of the average price during hours of the day when the sun wasn’t shining.
The monthly average volume weighted solar power price versus the average volume weighted non-solar power price weighted by the inverse profile.
Source:  Source: SEB graph and calculations and graphs. Based on German 15 min solar power prod. extracted from Blbrg

First gradually, then suddenly. There is a clear risk here that this progresses along a process of ”first gradually, then suddenly”. This is already what we have seen over the past couple of years: The discount for what solar power earns when it produces power versus what the power price is when it is not producing is increasing rapidly as more and more unregulated power supply hits right into the ”demand ceiling”. The inflicted pain from this process so far has to a large degree been masked by incredibly high natural gas prices. So even if the profitability for solar power has been eroding, the average power price in the system has been much higher than usual due to high natural gas and CO2 prices.

Graphing all the individual hourly data for solar power and power demand in Germany in 2022 we see that solar power alone is not yet reaching full saturation versus demand.

Germany 2022: Hourly German power demand and solar power supply in 2022. A total of 8760 hours for each in consecutive order. Her showing only Demand and Solar power production
ourly German power demand and solar power supply in 2022
Source: SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply is increasingly hitting the ”demand ceiling”. If we now add all the other sources of unregulated power supply, predominantly offshore and onshore wind and run of river, then we get the following picture where we see that unregulated German power supply increasingly is hitting right up and into the ”demand ceiling”. In those instances there will be no, flexible fossil power supply left to back off and that is typically when power prices collapse or go negative.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours for each in consecutive order.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

High unregulated power supply saturation vs demand implied lower power prices in 2022. Sorting 8760 individual power prices in Germany from Y2022 from lowest to highest shows that power German power prices were strongly related to the penetration of unregulated power supply. In the following graph, we have  sorted the data from the lowest price to the highest price in the year 2022. Prices were ireasingly depressed when unregulated power penetrated up and into the ”demand ceiling”. Natural gas prices were extreme in 2022 and overall power prices were exceptionally high for that reason as well. But the tendency of price destruction in relation to high levels of unregulated power vs demand is clear.

Germany 2022:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest.
Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

The unregulated power supply penetrating vs demand was even deeper in 2023. If we make the same graph for the year 2023 from 1 Jan to 20 Oct, we can see how the unregulated power is penetrating deeper and deeper into the power ”demand ceiling”. As a result the solar power discount vs. non-solar power hours from March to September in 2023 reached an even higher discount in 2023 than in 2022.

2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,…) in orange dots. A total of 8760 hours. Sorted according to how hourly power prices were from lowest to highest. German power demand was down 8.3% YoY in H1-2023 due to the European energy crisis and still very high power prices
2023 year to 20 October:  Hourly German power demand (blue dots) and unregulated supply (solar, wind, run of river,...) in orange dots.
Source:  SEB graph, German 15 min power data collapsed into hourly data, Data extracted through Blbrg

Solar power hours and non-solar power hours is not given as a clear cut-off, but a gradual one. In the following graph given as average profiles of the year from hour 1 to hour 24. First calculated explicitly for solar power production and then the inverse is calculated from that one. These solar power profiles can then be calculated for each individual day in the year giving individual inverse-curves on a daily basis.

The daily ”solar power production profiles” and the ”non-solar power production profiles” typically looks like this graph but calculated individually per day as solar power production varies from day to day and through the seasons. The solar power production profile is explicitly given by the actual solar power production that day while the non-solar power profile is derived directly from this and the inverse of it on a daily basis.
The daily "solar power production profiles" and the "non-solar power production profiles
Source: SEB graph and calculations and graphs. German 15 min solar power prod. extracted from Blbrg

The exponential growth in solar and wind power is likely to slow down in the years to come as grid constraints and lack of power cables is holding up growth in renewable energy with waiting times for access of 5-10 years:

Offshore wind auction’s lack of bids must be ‘wake-up call’ for UK, says RWE chief”

FT: ”Gridlock: how a lack of power lines will delay the age of renewables”

FT: ”Will there be enough cables for the clean energy transition?” 

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Analys

Surge in US crude inventories dampens bullish sentiment

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Price action
Brent crude is currently trading at USD 81.4 per barrel, marking a decline from its February peak of USD 83.6 per barrel recorded yesterday (February 14th), representing a notable drop of 2.6% within a short span of time.

Ole R. Hvalbye,
Analyst Commodities, SEB
Ole R. Hvalbye, Analyst Commodities, SEB

This morning, crude prices continue to slide, following a larger-than-anticipated increase in US crude inventories (+12.0 million barrels) as reported in the US Petroleum Status Report (EIA). This uptick in inventories is attributed to a further decrease in refinery operations and a relatively softer demand for petroleum products.

Yesterday, crude prices flirted with January highs amidst geopolitical tensions in the Middle East and sustained production cuts by OPEC+. However, the surge in crude inventories observed recently, the most significant since November 2023, is tempering bullish sentiment. Notably, inventories at the ”key” Cushing, Oklahoma, exceeded expectations for this time of year (refer to page 2 in attachment).

Adding to the bearish sentiment is the widespread reduction in oil product inventories, primarily influenced by refinery outages rather than a substantial uptick in demand. Notably, US crude oil refinery inputs averaged 14.5 million barrels per day, marking a decrease of 297 thousand barrels per day compared to the previous week, with refineries operating at 80.6% of their capacity.

Recent market expectations suggest the likelihood of prolonged higher US interest rates due to persistent inflationary pressures, resulting in a stronger US dollar. This aspect contributes to weaker oil prices, as the cost of procuring oil in other currencies becomes relatively expensive, thereby impacting short-term demand dynamics.

Oil inventories

Changes in Inventories:
Crude Oil Excluding SPR: Commercial crude oil inventories (excluding SPR) increased notably by 12.0 million barrels, representing a 2.8% rise from the previous week, but still a substantial 6.8% decrease from the same period last year. However, the surge exceeds typical seasonal adjustments, indicating potential reduced crude demand, and a more well-balanced market.

Distillate: Distillate (diesel) fuel oil inventories declined by 1.9 million barrels, showcasing a 1.5% decrease from the prior week but a significant 5.4% increase compared to the same period last year (naturally from very low levels). The weekly drawdown contributed to a further decline compared to normal, and now distillate stocks remain approximately 7% below the five-year average for this time of year – indicating sustained demand or constrained production.

Gasoline: Total motor gasoline inventories witnessed a decrease of 3.7 million barrels, marking a 1.5% decline from the previous week but a modest 2.2% increase from the same period last year. This reduction aligns with seasonal expectations, albeit slightly exceeding typical adjustments.

Jet Fuel: Inventories of kerosene-type jet fuel increased by 0.1 million barrels, representing a minimal change of 0.2% from the prior week. However, compared to the same period last year, jet fuel inventories surged by 12.1%, indicative of potential shifts in air travel for the start of 2024.

Crude & Product Including SPR: Total petroleum stocks, inclusive of SPR, witnessed a modest increase of 5.9 million barrels, indicating a 0.4% rise from the prior week. However, compared to the same period last year, total stocks experienced a notable 2.4% decrease.

Crude & Product Excluding SPR: Excluding SPR holdings, total petroleum stocks increased by 5.2 million barrels, reflecting a 0.4% rise from the previous week but a 2.1% decrease compared to the same period last year. Despite the weekly increase, petroleum stocks remain below historical averages for this time of the year.

Supply and Demand:
Supply remained relatively stable, with domestic crude oil production and imports showing marginal fluctuations. However, net imports witnessed a notable decline, reflecting shifts in trade patterns and production capacities.

Demand for petroleum products witnessed a decline, as evidenced by product supplied figures. The declines in certain product categories suggest nuanced shifts in consumer behavior.

Exports and Imports:
Exports surged by 751 thousand barrels per day, indicating robust international demand for US petroleum products. Conversely, imports witnessed a decline of 437 thousand barrels per day.

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Analys

The EUA price could drop to EUR 40/ton and then be picked up by Airliners, Shipping and Utilities

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The EUA price is dropping hard along with a sharp decline in the front-year TTF nat gas contract. The typical last-round sell-off in EUA prices have typically been a final sell-off of 10-20-30%. From EUR 60/ton level it implies a price decline down to EUR 54; 48; 42/ton. The front-year nat gas price and the front-year Coal-to-Gas (C-t-G) differential is what has held the EUA price above EUR 60/ton. But if the TTF 2025 price falls down to EUR 27/ton the front-year C-t-G differential will fall all the way towards EUR 40/ton. That TTF 2025 falls to EUR 27/ton or lower seems likely to happen and the risk is high that the EUA price will be sucked down along with it. But nat gas demand is starting to come back with a lag in nat gas price declines in the EU but probably also in Asia. Thus first an over-sell in nat gas prices, then demand revival and then a rebound in both nat gas prices and EUA prices. Airliners, shipping companies and Utilities will probably buy as much EUAs they can get if the EUA price fall down towards EUR 40/ton.

Bjarne Schieldrop, Chief analyst commodities at SEB
Bjarne Schieldrop, Chief analyst commodities, SEB

Front-year 2025 TTF nat gas price falls hard and so does the EUA price. The front-month EUA price dropped 2.7% yesterday to EUR 58.97/ton and thus broke out of the sideways trend around EUR 61/ton since 18 January. Today it has sold off another 3.2% to EUR 57.1/ton.

Again it is the nat gas price which is leading the way and more specifically it is about the front-year nat gas which lost 1.9% on Wednesday and another 2.5% again ydy to a close of EUR 30.65/MWh and today it has solf off 2.8% to EUR 29.8/ton.

The EUA price has very clearly been balancing on the front-year Coal-to-Gas (C-t-G) differentials. The C-t-G differentials have been significantly lower than EUR 60/ton both at the front-end of the curve (1-2-3 month) and for calendars 2026 and 2027. But the front-year nat gas price has held up at around EUR 31/MWh quite well since around mid January. 

How far down will the EUA price go? The final sell-off could be down towards EUR 40/ton. With these dynamics the big question then becomes: How far down will the front-year nat gas contract sell? It will of course sell off too far as commodities always do. The reason commodities do this is the natural reactive chain of events which normally comes with a lag: First the price goes down before dropping hard in the final round of the sell-off. Then demand comes back with a lag to the price action. This again drives the price back up and off from the lows to a level consistent with the revival in demand. If demand instead had reacted immediately to lower prices then the hard drop at the end of the sell-off might not have happened.

Looking at previous hard, final sell-off-drops in the EUA price we can see that final drops typically have been 10-20-30% as the last final drop. If we take the EUR 60/ton as the starting point of this final drop, then we are talking an EUA price bottom of somewhere in the range of EUR 54; 48; 42/ton.

Global nat gas demand destruction in the face of very high nat gas prices solved the energy crisis. Let’s link this back to price action in nat gas. The reason why Europe has managed the recent energy crisis (Russia/Ukraine, nat gas,…) so surprisingly well is 1) Large reduction in nat gas demand in EU due to exceptionally high prices and 2) Significant demand destruction in Asia freeing up nat gas to flow to the EU. I.e. it was global demand destruction of nat gas in response to extremely high prices globally which solved the energy crisis. It was solved by the global market.

Demand for nat gas is starting to come back as the price falls. The nominal historical average nat gas TTF price was EUR 20/MWh from 2010 to 2019. But the real average was EUR 26/MWh. So seen from the eyes of consumers in both Europe and Asia, a price of EUR 26/MWh is an historically absolutely normal price. Demand for nat gas should thus naturally accelerate back towards normal levels at current nat gas prices. Not just in Europe, but also globally in all regions exposed to nat gas prices set by global LNG prices. This is already happening in the EU. Temp. adj. demand destruction vs. normal has typically been running at around 16% from mid-2022 to December 2023. Average ytd is 14% while the last 15 days is 9%. Demand destruction is fading as the price of nat gas is falling. But do remember that this is also happening in Asia but it is harder to track.

Normal nat gas demand AND normal gas prices is not consistent as Russian nat gas exports still down 1100 TWh/yr. There is however an inconsistency here in expecting normal prices and normal demand for natural gas now onward. The inconsistency is that the EU and thus the world is still robbed of the normal flow of nat gas on pipelines to Europe. This amounts to a loss of 3 TWh/day and thus close to 1100 TWh/year. When this gas is no longer flowing to the EU it isn’t flowing anywhere. It is lost to both the EU and the world. Until that is, Russia has built loads of new pipes to Asia and new LNG terminals. And that takes years.

A return to normal prices and normal demand while the world still is missing 1100 TWh/year of Russian nat gas isn’t really a consistent outcome in our view.

Demand for nat gas will continue to revive as the price of nat gas keeps falling. But both the EU and the world still need of a nat gas price at above normal levels to induce a certain amount of demand destruction until the point in time when new LNG export facilities globally has managed to replace the 1100 TWh/year we have lost from Russia.

Front-end TTF nat gas down to EUR 27/MWh could drive the EUA price to EUR 40/ton. The dynamic sell-off nat gas, prices will likely move lower than to the level which over time is consistent with continued need for some demand destruction globally.  This because demand revival will come with a lag to the decline in prices. It is thus fully plausible that the TTF 2025 contract moves all the way down to EUR 27/MWh (or maybe even lower). If so it would imply a 2025 C-t-G differential of only EUR 40/ton for the EUA price to balance on and reference to. That could be the final hard drop in the EUA price. That’s a 30% drop from EUR 60/ton. But it won’t last because that nat gas price is likely too low vs. what is needed globally to maintain some level of demand destruction for a while longer.

An EUA price of EUR 40/ton would also be too cheap to resist for a range of market participants and they’d likely jump in and purchase with both hands. Airliners and shipping companies which will have difficulties of shifting away from fossil fuels and will need EUAs for years to come. Also utilities could step in and purchase large amounts of EUAs even if forward margins are negative. Some EU based utilities with large fossil-based assets bought truckloads of EUAs from 2011 to 2017 when the EUA price ranged from EUR 3/ton to EUR 9/ton. For them the EUA certificate is not only a marginal cost. It is also a licence to operate. The EUA price will of course not return to that level again. But if we move to EUR 40-50/ton, then it will probably trigger strategic buying by shipping companies, airliners as well as utilities.

Front-year TTF nat gas TTF price is dropping and leading the EUA price lower after a period of sideways action since mid-Jan

Front-year TTF nat gas TTF price is dropping and leading the EUA price lower after a period of sideways action since mid-Jan
Source: SEB graph, Blbrg data

But the EU and the world is still missing some 3 TWh/d or 1100 TWh/yr of piped nat gas from Russia. When Russian nat gas is no longer flowing on pipes to Europe, it is flowing nowhere.

Natgas
Source: SEB graph, Blbrg data

Nat gas demand destruction in the EU has been running at 15% to 17%  since mid-2022 in the face of high nat gas prices. But demand destruction is now fading down to 8%. Demand has started to come back as nat gas prices fall. Demand is probably also coming back in Asia, but not so easily to see.

Nat gas demand destruction in the EU
Source: SEB graph and calculations, blbrg data

EU nat gas demand destruction has started to fade.

EU nat gas demand destruction has started to fade.
Source: SEB graph and calculations, Blbrg data

Forward Coal to Gas (C-t-G) differentials vs EUA market prices. The EUA price has balanced on the front-year differential. But that has now fallen like a rock along with the fall in front-year TTF nat gas price.  Lead the EUA into a free-fall

Forward Coal to Gas (C-t-G) differentials vs EUA market prices.

The front-year Coal-to-Gas differential is a distribution of crosses between many different levels of efficiencies for coal and nat gas power plants. Averages of these are EUR 52.4/ton with Coal at USD 94.3/ton and Nat gas at EUR 29.8/MWh (both front-year 2025 prices). So EUA price is still hanging high.

The front-year Coal-to-Gas differential
Source: SEB graph and calculations, Blbrg EUA market price
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