Analys
The EUA price could drop to EUR 40/ton and then be picked up by Airliners, Shipping and Utilities
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.
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
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.
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.
EU nat gas demand destruction has started to fade.
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
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.
Collapsing after Trump tariffs and large surprise production hike by OPEC+ in May. Brent crude collapsed yesterday following the shock of the Trump tariffs on April 2 and even more so due to the unexpected announcement from OPEC+ that they will lift production by 411 kb/d in May which is three times as much as expected. Brent fell 6.4% yesterday with a close of USD 70.14/b and traded to a low of USD 69.48/b within the day. This morning it is down another 2.7% to USD 68.2/b. That is below the recent low point in early March of USD 68.33/b. Thus, a new ”lowest since December 2021” today.
Kazakhstan seems to be the problem and the reason for the unexpected large hike by OPEC+ in May. Kazakhstan has consistently breached its production cap. In February it produced 1.83 mb/d crude and 2.12 mb/d including condensates. In March its production reached a new record of 2.17 mb/d. Its crude production cap however is 1.468 mb/d. In February it thus exceeded its production cap by 362 kb/d.
Those who comply are getting frustrated with those who don’t. Internal compliance is an important and difficult issue when OPEC+ is holding back production. The problem naturally grows the bigger the cuts are and the longer they last as impatience grows over time. The cuts have been large, and they have lasted for a long time. And now some cracks are appearing. But that does not mean they cannot be mended. And it does not imply either that the group is totally shifting strategy from Price to Volume. It is still a measured approach. Also, by lifting all caps across the voluntary cutters, Kazakhstan becomes less out of compliance. Thus, less cuts by Kazakhstan are needed in order to become compliant.
While not a shift from Price to Volume, the surprise hike in May is clearly a sign of weakness. The struggle over internal compliance has now led to a rupture in strategy and more production in May than what was previously planned and signaled to the market. It is thus natural to assign a higher production path from the group for 2025 than previously assumed. Do however remember how quickly the price war between Russia and Saudi Arabia ended in the spring of 2020.
Higher production by OPEC+ will be partially countered by lower production from Venezuela and Iran. The new sanctions towards Iran and Venezuela can to a large degree counter the production increase from OPEC+. But to what extent is still unclear.
Buy some oil calls. Bullish risks are never far away. Rising risks for US/Israeli attack on Iran? The US has increased its indirect attacks on Iran by fresh attacks on Syria and Yemen lately. The US has also escalated sanctions towards the country in an effort to force Iran into a new nuclear deal. The UK newspaper TheSun yesterday ran the following story: ”ON THE BRINK US & Iran war is ‘INEVITABLE’, France warns as Trump masses huge strike force with THIRD of America’s stealth bombers”. This is indeed a clear risk which would lead to significant losses of supply of oil in the Middle East and probably not just from Iran. So, buying some oil calls amid the current selloff is probably a prudent thing to do for oil consumers.
Brent crude is rejoining the US equity selloff by its recent collapse though for partially different reasons. New painful tariffs from Trump in combination with more oil from OPEC+ is not a great combination.
Brent crude prices initially maintained the gains from late March and traded sideways during the first two trading days in April. Yesterday evening, the price even reached its highest point since mid-February, touching USD 75.5 per barrel.
However, after the U.S. president addressed the public and unveiled his new package of individual tariffs, the market reacted accordingly. Overnight, Brent crude dropped by close to USD 4 per barrel, now trading at USD 71.6 per barrel.
Key takeaways from the speech include a baseline tariff rate of 10% for all countries. Additionally, individual reciprocal tariffs will be imposed on countries with which the U.S. has the largest trade deficits. Many Asian economies end up at the higher end of the scale, with China facing a significant 54% tariff. In contrast, many North and South American countries are at the lower end, with a 10% tariff rate. The EU stands at 20%, which, while not unexpected given earlier signals, is still disappointing, especially after Trump’s previous suggestion that there might be some easing.
Once again, Trump has followed through on his promise, making it clear that he is serious about rebalancing the U.S. trade position with the world. While some negotiation may still occur, the primary objective is to achieve a more balanced trade environment. A weaker U.S. dollar is likely to be an integral part of this solution.
Yet, as the flow of physical goods to the U.S. declines, the natural question arises: where will these goods go? The EU may be forced to raise tariffs on China, mirroring U.S. actions to protect its industries from an influx of discounted Chinese goods.
Initially, we will observe the effects in soft economic data, such as sentiment indices reflecting investor, industry, and consumer confidence, followed by drops in equity markets and, very likely, declining oil prices. This will eventually be followed by more tangible data showing reductions in employment, spending, investments, and overall economic activity.
Ref oil prices moving forward, we have recently adjusted our Brent crude price forecast. The widespread imposition of strict tariffs is expected to foster fears of an economic slowdown, potentially reducing oil demand. Macroeconomic uncertainty, particularly regarding tariffs, warrants caution regarding the pace of demand growth. Our updated forecast of USD 70 per barrel for 2025 and 2026, and USD 75 per barrel for 2027, reflects a more conservative outlook, influenced by stronger-than-expected U.S. supply, a more politically influenced OPEC+, and an increased focus on fragile demand.
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US DOE data:
Last week, U.S. crude oil refinery inputs averaged 15.6 million barrels per day, a decrease of 192 thousand barrels per day from the previous week. Refineries operated at 86.0% of their total operable capacity during this period. Gasoline production increased slightly, averaging 9.3 million barrels per day, while distillate (diesel) production also rose, averaging 4.7 million barrels per day.
U.S. crude oil imports averaged 6.5 million barrels per day, up by 271 thousand barrels per day from the prior week. Over the past four weeks, imports averaged 5.9 million barrels per day, reflecting a 6.3% year-on-year decline compared to the same period last year.
The focus remains on U.S. crude and product inventories, which continue to impact short-term price dynamics in both WTI and Brent crude. Total commercial petroleum inventories (excl. SPR) increased by 5.4 million barrels, a modest build, yet insufficient to trigger significant price movements.
Commercial crude oil inventories (excl. SPR) rose by 6.2 million barrels, in line with the 6-million-barrel build forecasted by the API. With this latest increase, U.S. crude oil inventories now stand at 439.8 million barrels, which is 4% below the five-year average for this time of year.
Gasoline inventories decreased by 1.6 million barrels, exactly matching the API’s reported decline of 1.6 million barrels. Diesel inventories rose by 0.3 million barrels, which is close to the API’s forecast of an 11-thousand-barrel decrease. Diesel inventories are currently 6% below the five-year average.
Over the past four weeks, total products supplied, a proxy for U.S. demand, averaged 20.1 million barrels per day, a 1.2% decrease compared to the same period last year. Gasoline supplied averaged 8.8 million barrels per day, down 1.9% year-on-year. Diesel supplied averaged 3.8 million barrels per day, marking a 3.7% increase from the same period last year. Jet fuel demand also showed strength, rising 4.2% over the same four-week period.
Analys
Brent on a rollercoaster between bullish sanctions and bearish tariffs. Tariffs and demand side fears in focus today
Brent crude rallied to a high of USD 75.29/b yesterday, but wasn’t able to hold on to it and closed the day at USD 74.49/b. Brent crude has now crossed above both the 50- and 100-day moving average with the 200dma currently at USD 76.1/b. This morning it is trading a touch lower at USD 74.3/b
Brent riding a rollercoaster between bullish sanctions and bearish tariffs. Biden sanctions drove Brent to USD 82.63/b in mid-January. Trump tariffs then pulled it down to USD 68.33/b in early March with escalating concerns for oil demand growth and a sharp selloff in equities. New sanctions from Trump on Iran, Venezuela and threats of such also towards Russia then drove Brent crude back up to its recent high of USD 75.29/b. Brent is currently driving a rollercoaster between new demand damaging tariffs from Trump and new supply tightening sanctions towards oil producers (Iran, Venezuela, Russia) from Trump as well.
’Liberation day’ is today putting demand concerns in focus. Today we have ’Liberation day’ in the US with new, fresh tariffs to be released by Trump. We know it will be negative for trade, economic growth and thus oil demand growth. But we don’t know how bad it will be as the effects comes a little bit down the road. Especially bad if it turns into a global trade war escalating circus.
Focus today will naturally be on the negative side of demand. It will be hard for Brent to rally before we have the answer to what the extent these tariffs will be. Republicans lost the Supreme Court race in Wisconsin yesterday. So maybe the new Tariffs will be to the lighter side if Trump feels that he needs to tread a little bit more carefully.
OPEC+ controlling the oil market amid noise from tariffs and sanctions. In the background though sits OPEC+ with a huge surplus production capacity which it now will slice and dice out with gradual increases going forward. That is somehow drowning in the noise from sanctions and tariffs. But all in all, it is still OPEC+ who is setting the oil price these days.
US oil inventory data likely to show normal seasonal rise. Later today we’ll have US oil inventory data for last week. US API indicated last night that US crude and product stocks rose 4.4 mb last week. Close to the normal seasonal rise in week 13.
Lowest since Dec 2021. Kazakhstan likely reason for OPEC+ surprise hike in May
Oljepriserna slaktas på samtidiga negativa faktorer
Tariffs deepen economic concerns – significantly weighing on crude oil prices
Brent on a rollercoaster between bullish sanctions and bearish tariffs. Tariffs and demand side fears in focus today
Våren präglas av svängigt elpris och ankkurva
USA är världens största importör av aluminium
Oversold. Rising 1-3mth time-spreads. Possibly rebounding to USD 73.5/b before downside ensues
Crude oil comment: Unable to rebound as the US SPX is signaling dark clouds on the horizon
Crude oil comment: Not so fragile yet. If it was it would have sold off more yesterday
Priset på koppar skiljer sig åt efter tariffer
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Nyheter3 veckor sedanUSA är världens största importör av aluminium
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Analys4 veckor sedan
Oversold. Rising 1-3mth time-spreads. Possibly rebounding to USD 73.5/b before downside ensues
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Analys3 veckor sedan
Crude oil comment: Unable to rebound as the US SPX is signaling dark clouds on the horizon
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Analys3 veckor sedan
Crude oil comment: Not so fragile yet. If it was it would have sold off more yesterday
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Nyheter3 veckor sedanPriset på koppar skiljer sig åt efter tariffer
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Analys2 veckor sedan
Oil prices climb, but fundamentals will keep rallies in check
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Analys2 veckor sedan
Crude oil comment: Ticking higher as tariff-panic eases. Demand growth and OPEC+ will be key
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Nyheter2 veckor sedanEtt samtal om råvarorna som behövs för batterier