August wholesale reductions wiped out on September 9th

Wednesday 18th September 2019

It has been a dramatic few days across energy markets, with the pretty steep reductions of August entirely wiped out on a single day – 9th September. Further increases followed the drone attacks on Saudi oil facilities over the weekend that effectively stopped 5% of global crude output.

 On 9th September, there were three announcements that shook power and gas markets. We had EDF (the state generator in France) confirming that faulty components had been identified in some of their nuclear power stations. This immediately brought back memories of 2016 when plant issues were also identified, and EDF had to shut down generation on a rolling basis. France is currently 75% nuclear, so any problem is potentially massive for the French, but also for France’s neighbours (e.g. the UK will routinely import from France but also export generation as required on the continent; a French shortfall of generation thus pushes the price).

 Another announcements that drove prices was the Dutch government confirming they were bringing forward the closure of the Groningen gas field due to earthquakes being caused by gas extraction. Gas was driven higher still when the European Court announced it was limiting Russian gas flows via the Opal pipeline in Germany.

 Whilst we had seen some correction after 9th September, the drone attacks that followed created a surge in oil – the greatest percentage increase since 1988 (so greater than at the time of the Gulf War) – which fed through to the wider energy complex – power, gas, carbon, coal. Prices have now began to correct after the initial spike, as oil falls on the expectation that the disruption will be short-lived, that the facility will soon be back online and US and Saudi stockpiles are more than capable of making up the shortfall. However, there is still the fear that prices will increase if the ultimate perpetrator of the attacks is identified as Iran and some military response follows, with obvious implications for the Strait of Hormuz.

 These events once again emphasis the extreme volatility on global energy costs.