Brent: shrinkage anticipated in 2014
Since the beginning of the year, Brent has varied between $98/B (September) and $115/B (at the beginning of June), which is fairly close to the extremes seen in 2013. The anticipated average for 2014, which has fluctuated between $105 and $110/B, is currently situated at $105/B, slightly down on 2013 ($108.60/B). Movements the price of Brent remain highly uncertain in the light of possible influencing factors: whether or not there is an increase in exports from Libya; whether or not negotiations with Iran on nuclear power are successful (deadline postponed to 24 November); whether or not the insurgents in Iraq affect production and exports in the south of the country; whether or not the tension in Ukraine escalates; the dollar exchange rate (increasing against the Euro since May, a factor depressing the oil price); the global economic climate (increased growth expected in 2015) and the outlook for the stock exchanges. The field of factors affecting the price of Brent is therefore obviously very wide. In any case, the increase in US production due to shale oil is playing a moderating role and partly explains the slight decline experienced since 2012.
NBP: drop in July, but market concerns
The average NBP price for July was €16.2/MWh ($6.4/MBtu), 3.6% less than the previous month and 37% less than the same month last year. The NBP was marked by relatively high volatility, around +/-10%. It fell to a low of €14.8/MWh ($5.9/MBtu) on 11 July before climbing to nearly €18/MWh ($7.0/MBtu) on 28 July. This increase coincided with rising tensions between Russia and the Western countries, with stiffer sanctions imposed by the US on 16 July and then by the Europeans on 28 July. However, it should be noted that pressure remains moderate for now. In fact, the NBP is significantly lower than it was during the past three summers (€21 to €26/MWh on average).
Future trends remain very uncertain given the many possible scenarios regarding Ukraine (whether or not gas transit via Ukraine will be impacted, Russian exports disrupted, etc.). Relative to the beginning of July, the market is gradually adjusting the trends for the coming months upwards, particularly for the winter. Future prices are now around €27/MWh from December to next March.
The average NBP price in June stood at €16.8/MWh (US$6.7/MBtu), down 12% on the previous month and down 31% compared with the same month last year. The price of NBP is at its lowest since mid-2010 – and is now cost-competitive with coal in the electricity sector. This means equivalent production costs, factoring in the price of CO2 at €6/tonne, as well as the Carbon Price Support (CPS) effect. Introduced in April 2013 (at £4.9/TCO2), it has been at £9.5/TCO2 since April, significantly increasing the cost of using coal to generate electricity. The cost increase is around €11/MWh, as opposed to €4/MWh for a gas-fired power plant.