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Power markets: when the facts don't fit

By Benedict De Meulemeester

By Benedict De Meulemeester on 13/12/2009

Last week we saw power markets in Europe rising. Compared to a week before, German baseload on the EEX exchange for 2010 rose 1,32 euro per MWh to 44,27. Further on the curve, the bullishness was even more outspoken with 2011 rising to 51,35, up 2,22 euro per MWh. These are still very low levels, however, so no reason to panic. But the question pops up: what is going on? And is this the beginning of a definite reversal of the bullish trend that we saw since September?

The strange thing with what happened last week is that it was unsupported by fundamentals. The oil market dropped below 75 dollar, but then, power markets haven't been much influenced by oil markets for most of the past year. Coal prices, which have an influence on baseload prices, were trading near the lower end of their 80 - 85 dollar range. In the beginning of the week natural gas prices went up slightly as colder weather was announced. But this uptick soon ended. TTF Cal 10 traded at 12,59 euro per MWh, which is just one euro above its record low. Carbon prices were also punched upwards as the beginning of the week, due to enthusiasm over the start of the Copenhagen climate conference. But they didn't continue this uptick in the second half of the week, whereas power prices continued to rise.

The uptick of power prices therefore was unsupported by fundamentals. It looks like the uptick began at the beginning of the week due to rising natural gas and carbon prices. Apparently many buyers took this signal from the market to lock in prices for those volumes for which they hadn't done anything yet. We got a lot of phone calls from clients anxious to fix the good prices no that they seemed to be passing by. This buying interest made prices rise. I'm curious whether that trend will continue tomorrow morning. Or will the fundamentals kick in and cause power prices to fall again?

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