Heating oil price jump, oil and gas under pressure

Created: 02/12/2022 08:43

By: Matthew Schneider

Energy markets in focus - every two weeks on Merkur.de © Michael Kappeler

The mild weather forecast had stabilized gas and electricity prices at a comparatively low level - but a cold winter in Japan could push prices up.

In the case of heating oil, a sharp reversal is even likely after the recent downturn.

After a spectacular fall in October, electricity and gas prices stabilized at a high level throughout November before bouncing back up again in early December.

It will probably be decisive whether the favorable weather forecast for the winter will hold up.

Meanwhile, there is a lot to be said for heating oil customers to fill their tanks now.

Note: All information is as of December 1st.

gas price

The gas market moved mainly sideways in November, but cold temperatures in East Asia made December an expensive start: while a megawatt hour for 2023 still cost a good 124 euros in mid-November, trading went significantly more expensive after brief fluctuations at a good 160 euros the year-end sprint.

Nevertheless, the cheapest consumer prices remained at an average of a good 19 cents per kilowatt hour for the time being.

Basically, stability is expected on the wholesale market for the coming year, explains Louisa Wasmeier, analyst at the Research Center for Energy Economics (FfE): "We do not expect any significant increase in gas exports on the world market." we do not decrease the current savings.

Although the gas price brake caps 80 percent of consumption, the incentive to save remains.” In view of the mild winter forecast, below-average gas consumption is expected.

But not only the European winter is relevant, but also in East Asia, the most important competitive market for liquid gas: Here the prices for December contracts (2023) have risen by a good 26 percent within two weeks and are now around 132 euros per megawatt hour.

This is likely to be mainly due to the cold: According to the “Japan Times”, the Japanese weather service expects a winter that will be just as cold or colder than usual.

Tobias Federico from the energy consulting agency Energy Brainpool: “We are in direct competition with East Asia.

If the prices rise there, the prices in Europe will also rise, so that liquid gas supplies remain secure.” However, it is difficult to determine how sustainable the current trend is.

price of electricity

House customer prices for electricity have fallen: while a kilowatt hour cost almost 43 cents on average throughout November, new customers can now count on 40.3 cents.

Regional tariffs may vary.

Since gas is currently the price setter for electricity, FfE analyst Louisa Wasmeier expects prices to be closely linked.

Furthermore, how strong the wind blows is decisive for the short-term electricity price in winter.

Wasmeier sees a stable situation in the generation of electricity from coal and hydroelectric power plants.

Nevertheless, the recent spike in gas prices has also affected electricity.

If gas prices continue to rise, electricity will also become more expensive for consumers.

price of heating oil

Heating oil prices are plummeting: while a liter cost a good 1.69 euros on October 10, it's now barely 1.22.

Oliver Klapschus, spokesman for the market portal Heizoel24, explains: "In the summer, many industrial companies had switched from gas to oil, which drove up prices and the German refineries responded with higher production."

But gas became cheaper again, and demand for oil fell.

There is still a lot of cheap oil on the market.

"The fall in consumer prices precisely reflects the situation in the wholesale markets," says Klapschus.

The development is currently stable: "It is quite possible that the prices will fall to 1.10 or 1.05 euros." Anyone who still has some oil in the tank can now speculate.

"However, prices can rise again very quickly and sharply," warns Klapschus.

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Carsten Fritsch, commodity analyst at Commerzbank, also warns of a rapid turnaround: "Partly because of the zero-Covid policy in China and the current protests against it, retailers are currently expecting lower demand," says the analyst.

But this assessment is risky: "If the Chinese government relaxes the measures and the industry starts up again, prices can quickly rise again."

An even clearer risk comes from the supply embargo on Russian oil, which comes into force on Monday: “So far, Russia has been able to sell a lot of oil to China and India – but the markets are largely saturated.

If the EU embargo takes effect, Russia will therefore have to reduce its production - this will cause world market prices to rise." A barrel of North Sea Brent currently costs a good 84 dollars, "$95 per barrel is still possible in December," says Carsten Fritsch.

Another risk comes from the Opec+ association of producing countries: “If it pulls through the current production cuts as planned by the end of 2023, we will experience an undersupply in the market by the second quarter of 2023 at the latest, which will increase in the second half of the year.” But the oil producers could already control their prices want to optimize much earlier: “The next OPEC+ meeting is on Sunday.

In view of the sharp fall in prices recently, further cuts could even be discussed here, which would make crude oil more expensive again.” These three risks affect consumers directly: “The inventories are significantly emptier than usual, so there is no buffer.”

Wood pellet prices

Thanks to a full warehouse, pellets can be had for just under 500 euros per tonne.

According to Martin Bentele, Managing Director of the German Pellet Association, it can hardly get much better for consumers.

As with oil, there is now a certain risk of speculation: "If the winter in Europe is surprisingly colder, prices will rise again."