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SEB – Jordbruksprodukter, vecka 9 2012

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SEB Veckobrev Jordbruksprodukter - AnalysInledning

Den senaste veckan har prisförändringarna varit små. Ett par rörelser sticker ut och det är en prisuppgång på sojamjöl på uppemot 6% och en prisuppgång på Chicagovete med 3%. Intressant är att Chicagovetet stigit och Matifvetet fallit, när man räknar om båda till samma valuta. Av största vikt just nu är utsikterna för vädret under vår och sommar på norra halvklotet och storleken för skördebortfallet i Sydamerika. Vi går igenom detta i tur och ordning i det här brevet.

Vi måste också nämna Benny från FEDs mycket stramare finanspolitik. Den amerikanska centralbanken FED:s chef Ben Bernanke gav ett tal till Representanthuset idag, som hade stor påverkan på marknaden. Silverpriset föll som mest med 10% efteråt. Huvudbudskapet var att den amerikanska ekonomin tuffar på i oförändrad takt om 2.5% tillväxt på årsbasis. Han kommenterade finanspolitik och oljepris, men det var hans kommentarer om penningpolitiken som fick marknaden att skaka till. Han plockade inte upp stafettpinnen från ECB – som just nu fullkomligen sprutar ut friska pengar i euroland, 4300 miljarder kronor idag. Benny gav ingen indikation alls som skulle kunna tyda på ett nytt amerikanskt stimulanspaket, ett ”QE3” skulle kunna vara aktuellt. Detta fick guldpriset på fall och silverpriset tog i vanlig ordning ut svängen ännu mer. Basmetaller tyngdes också, däremot gick jordbruksprodukterna opåverkade ur dagen.

Väder

De senaste två veckorna har Southern Oscillation Index (“SOI”) fallit kraftigt och indikerar nu normala ENSO-förhållanden – alltså inget La Niña längre. Den senaste indexnoteringen, från den 26 februari ligger på +0.7. Ett värde > +8 innebär La Niña.

30 day moving SOI

USA är som bekant torkdrabbat på grund av La Niña. Nedan ser vi ”US Drought Monitor”. Om det är någon gröda som råkat värst ut, så är det bomull. Det är rött både i det som kallas för ”Prairie Gateway” (västra Texas och uppåt) och ”Southern Seaboard” (norr om Florida).

US Drought Monitor - Väder USA

Sydamerikas väderleksprognos visar idag nära normal nederbörd i norra Argentina, Paraguay och södra Brasilien. Södra Argentina och centrala och norra Brasilien är torrare. I Sao Paulo är det smällhett och det har inte regnat på länge. Karnevalen slutade i lördags. Nedan ser vi två satellitbilder på nederbörden över södra Brasilien och norra Argentina för tiodagarsperioden 11 februari och 20 februari. Till vänster ser vi nederbörden och till höger avvikelse från normal nederbörd.

Data på nederbörd - Väder

Södra Europa är mycket torrt, medan norra Europa som bekant är fuktigt. Storbritannien deklarerade tidigare i veckan ett område i södra landsänden som ”torkdrabbat”.

Från Ryssland och Ukraina har det kommit motstridiga uppgifter. Martell, som gör väderleksprognoser för lantbruket, skrev den 28 februari att snötäcket över huvuddelen av vinterveteområdena har varit tillräckliga och att vetet bör ha klarat sig bra trots extrem kyla. Nedan ser vi en bild på snödjupet (i tum).

Väder - Snödjup i Ryssland den 28 februari 2012

Nederbörden har enligt Martell varit god, som vi ser i nedanstående bild.

Väder - Nederbörd i Ryssland - 26 februari 2012

Det ryska jordbruksdepartementet väntar sig nu högre spannmålsexport för 2011/12 och siktar nu på 27 – 28 mt, mot tidigare 25 mt. Detta baserar sig sannolikt på en mer optimistisk bild av snötäcke och nederbörd. Detta är ett helt annat budskap än den oro för ett exportstopp per idag, 1 mars, som tidigare skrämde spannmålsmarknaden i världen.

Vädersituationen är alltså betydligt ljusare idag än den var för bara några veckor sedan, men mycket kan hända fram till skörd, förstås.

Vete

Vi börjar med att titta på hur terminspriskurvorna har förändrats de senaste 7 arbetsdagarna, där vi kan konstatera att den irrationella backwardation som finns i det europeiska kvarnvetet på Matif har minskat. Korta terminskontrakt har sjunkit mer än de med längre löptid. Sannolikt är det bönder i EU som börjat sälja från sina lager. Samtidigt har contangot i Chicagovetet minskat för där har korta terminskontrakt stigit mer än de med längre löptid. Vi förväntar oss att säljtrycket från europeiska bönder kommer att fortsätta och att backwardation kommer att fortsätta minska.

Terminspris på vete - Matif och CBOT - 29 februari 2012

Prisnivån för t ex novemberleverans på Matif har inte förändrats så mycket. Nedan ser vi kursdiagrammet för detta:

Vete - Novemberleverans på Matif - Prisdiagram

En kort teknisk kommentar till diagrammet ovan: Å ena sidan har uppgången från december förlorat momentum och man skulle kunna tolka kursrörelserna hittills i år som en vändningsformation innan en förestående nedgång. Å andra sidan är det mycket kortsiktiga motståndet (röd linje) bruten på uppsidan. Skulle vi få en uppgång torde 200 euro återigen vara ett ställe där många gärna vill sälja, ett naturligt motstånd. Det är en lite svårläst marknad, men vi fortsätter att vilja sälja novemberkontraktet utifrån ett tekniskt perspektiv.

SEB prognos på vete och jordbruksråvarorIGC:s (International Grains Council) uppskattning av den globala veteproduktionen under 2011/12 har justerats upp med ytterligare 5 mt, jämfört med januari-rapporten, till rekordhöga 695 mt (ca 2 mt högre än USDA:s senaste prognos) vilket delvis återspeglar högre estimat för Kazakstan, Indien och Australien. Prognosen för globala utgående lager för vete 2011/12 justeras upp med 7 miljoner ton till 211 mt, en ökning med 8% jämfört med 196 mt 2011.

Inför det kommande skördeåret 2012/13 förväntas den globala vete arealen öka med 1.5% och medan grödorna har utvecklats relativt väl på norra halvklotet, finns en fortsatt oro över hur torkan kommer att påverka delar av Ukraina och USA. Den genomsnittliga avkastningen kommer troligtvis inte att matcha föregående års höga siffror och den globala produktionen beräknas därför minska med 15 mt till 680 mt.

Från höga lager av vete och en ökning i produktionen av majs och korn i år (vilket sannolikt kommer att minska användningen av fodervete) förväntas endast en blygsam nedgång i utgående lager för 2012/13 jämfört med de förväntade rekordnivåerna den här säsongen.

Europeiska kommissionen skriver i sin prognos att höstsådden under 2011 inför årets skörd har ökat i de flesta länderna, med undantag för Sverige och Danmark där dåliga väderförhållanden påverkade sådden.

Oro finns också att den köldperiod som drabbade Europa i slutet av januari kan komma att påverka grödorna i delar av Väst och Östeuropa. En annan väderrelaterad oro är bristen på nederbörd i vissa delar av Portugal och Spanien, som vi nämnt ovan.

Kommissionen uppskattar att årets veteskörd kommer att uppgå till strax under 133 mt, vilket är en ökning med ca 3.2 mt jämfört med 2011 och bygger på en förväntad avkastning om 5.7 ton per hektar, vilket skulle vara högre än genomsnittet och det bästa resultatet på fyra år, trots en eventuell påverkan av köldknäppen tidigare den här månaden. En ökad sådd areal om 133 000 hektar borde också göra sitt till och den totala arealen för vete förväntas uppgå till 23.3 m hektar, vilket är mer än de estimerade 23.0 m hektar från den franska analysfirman Strategie Grains för två veckor sedan.

Ökad produktion och minskad konsumtion kommer att öka Europas utgående lager av vete i slutet av 2012/13 till 15.1 mt, enligt kommissionen. Användandet av vete som foderingrediens och efterfrågan på vete från etanolanläggningar förväntas minska.

Produktion av olika sädesslag år 2008 till 2012

Från Kina har kommit prognoser på en 46 mt lägre spannmålsskörd jämfört med förra årets rekord på 571 mt. Det har också talats om att använda vete som foder där. Kina är ett observandum, men annars bör det bli en press nedåt på vetepriset i världen framöver.

Maltkorn

Novemberkontraktet på maltkorn har handlats ner 1.25 euro sedan förra veckans brev. Vi finner inga specifika nyheter.

Maltkorn (malting barley) - Prisdiagram

Potatis

Priset på industripotatis för leverans nästa år är oförändrat. För leverans i år har priset handlats ner ungefär 5%, dvs mer av samma sak som präglat marknadsföringsåret hela tiden.

Industripotatis - Prisdiagram den 29 februari 2012

Majs

Brasilien är nu i full fart med Safrinha, den andra skörden, som enligt Conabs senaste prognos väntas bli 25.8 mt istället för 21.3 mt, som man trodde i januariprognosen. Det kompenserar mer än väl bortfallet av den första skörden, som skadades av torka.

Conabs prognos majs och andra grödor - Safrinha

Nedan ser vi decemberkontraktet på majs på CBOT, där priserna bildat en klassisk ”triangelformation”. Vi skrev om detta redan förra veckan, men något utbrott har ännu inte inträffat – bortsett från ett falskt utbrott på nedsidan. Ett falskt utbrott brukar följas av en ordentlig rörelse åt andra hållet. Det återstår att se, men ett brott uppåt måste tas på allvar. Vi får ha en neutral rekommendation för tillfället.

Diagram över priser på majsterminer den 28 februari 2012

Sojabönor

Det kortaste terminskontraket på CBOT stängde över 13 dollar för första gången på fem månader igår. Privata analysfirmor fortsätter att prognosticera Sydamerikas skörd 14 mt lägre än förra året. Novemberterminen närmar sig också 13 dollar, som vi ser i diagrammet nedan. Motståndet från toppen i oktober är passerad, men priset har kommit upp i det intervall som priset låg i för ett år sedan och som hade sin topp på 14 dollar. 13 dollar är ändå sannolikt en naturlig nivå där det troligtvis finns säljare som väntar.

Sojabönor (soybean) - Prisdiagram över futures den 28 februari 2012

Vi skulle vilja sälja november på den här nivån vid 13 dollar per bushel.

Raps

Novemberkontraktet föll kraftigt efter det förra veckobrevet, men återhämtade sig med ännu större kraft. Priset ligger nu bara 1.75 euro från 440. Det är en nivå där vi absolut skulle vilja sälja.

Terminer för raps - Novemberkontraktet den 28 februari 2012

Trots att sådden av kanadensisk canola inte startar förrän i mitten av april har prognoser över arealen redan börjat komma med variationer mellan 7.85 m hektar till 8.49 m hektar. Om dessa siffror stämmer skulle det vara klart över 2011 års areal på 7.54 m hektar. Prognoser från Wild Oats Grainworld konferensen i Winnipeg uppskattar att canola kan komma att bli årets stora vinnare då estimat visar att för första gången någonsin kommer sådd areal för canola att överstiga sådd areal för vete (exkl durum) Skörden av canola blev större än skörden av vete förra året men det berodde på det stora bortfallet av vete på grund av de omfattande översvämningarna, särskilt i södra Manitoba. I år blir det absolut inte några översvämningar.

Den Europeiska kommissionen uppskattar EU-27’s produktion av raps till 20,2 mt för 2012, en ökning från det estimerade 19,1 mt under 2011. Trots en ökad produktion i år förväntas utgående lager bli låga, runt 1 mt, vilket understryker behovet för Europa att fortsätta importera raps.

Prognoserna för både Kanada och Europa är dock väldigt preliminära i detta tidiga skede och beror i mångt och mycket på förhållandena vid vårsådden samt väder under växtperioden.

Efter två bra säsonger för australiensisk canola tror AOF att även detta år kommer att bli bra. Produktionen för 2011 beräknas till 3 mt, men skulle kunna uppgå till så mycket som 3.3 mt. Den slutliga siffran kommer dock inte att presenteras förrän nästa månad. När det gäller canola behöver lantbrukaren bestämma sig runt april om det är den grödan som ska sås och vid den tiden förra året var priset på oljeväxter attraktiva i jämförelse med priset på vete vilket ledde till att en större areal än vanligt såddes med canola, 1.8 m hektar jämfört med 1.6 m hektar året innan.

Mjölk

För en vecka sedan låg priset på 15.37. Det blev en liten sväng nedåt, men sedan vände priset upp till 15.55 senast. Liksom vi skrev för en vecka sedan, tyder det mesta på att prisfallet är över. Det bör vara möjligt för marknaden att hämta tillbaka lite av fallet. Vid 16 ser vi att folk i oktober i alla fall, tyckte att 16 var en viktig nivå. På uppsidan kan vi nog därför gissa att en del kommer att reagera med säljordrar.

Milk future - Terminer på mjölk den 29 februari 2012

Gris

Majkontraktet orkade inte igenom motståndet (röd linje) utan föll av. Priset har nu också brutit den uppåtgående stödlinjen (grön) och det signalerar ett kortsiktigt trendbrott nedåt. Vi är negativa till priset på Lean Hogs. Priset i Europa har för majleverans stigit från 1.69 till 1.708 euro per kilo den senaste veckan.

Terminspriser på gris (lean hogs) den 29 februari 2012

Graf över prisutveckling på lean hog (gris) - 29 februari 2012

Valutor

EURSEK

Läget är oförändrat från förra veckan: En ”triangelformation” har bildats sedan mitten av januari. Man bör invänta riktningen på utbrottet från den för att fatta beslut om att köpa eller sälja eursek. 8.70 har tidigare varit ett starkt ”golv” för växelkursen.

Valutadiagram på EUR SEK den 29 februari 2012

EURUSD

Euron steg mot dollarn, men efter ECB:s pengatryckeri och Ben Bernankes återhållsamhet föll euron idag, dock inte signifikativt ur ett tekniskt perspektiv.

Valutadiagram på EUR USD den 29 februari 2012

USDSEK

Dollarn ligger för närvarande i sjunkande trend, men är nere på en nivå där det tidigare funnits stöd.

Valutadiagram för USD SEK den 29 februari 2012

[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

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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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