EGM Monthly Report - November 2021

Macroeconomic and forex

• Global output lags behind global demand and recruitment difficulties are not easing, which fuels inflationary pressures.
• Central banks resist market pressure and defy rate hike expectations, pushing equity markets to record-high levels.
• The euro may not have bottomed out yet.

Oil

• The current high prices for crude oil will be a feature of the market, as light sweet crude supply does not grow as fast as previously anticipated. US crude production remains at fairly depressed levels, OPEC underdelivers on their supply hikes, and the global market will increasingly rely on geopolitically sensible suppliers such as Iran and Venezuela.
• Product prices in Europe will continue to diverge, with diesel in high demand due to the recovery in jet fuel consumption, heating demand and road transportation, as economies recover. European fuel oil demand will remain weak and will have to be exported at a discount to Asia.

Gas

• European gas prices dropped from their record highs, pressured by the easing of the Asian market and hopes of higher Russian supply.
• Although the momentum seems now bearish, the European gas market equilibrium remains fragile given the relatively low stock levels and the higher levels of Asia JKM prices.

Coal

• Global coal prices dropped significantly from mid-October after China government unleashed a raft of measures to boost supply.
• Prices are now torn between China authorities’ desire to push them lower (as they are still above the supposed official preferred zone) and a fundamental situation which, although clearly improving, is still fragile.

Carbon

• The carbon prices retreated toward of the lower hand of the 58-65€/t range in October, a month marked by a lower liquidity, a weaker correlation with the gas market and an extreme volatility of energy prices. The two main downward moves of the month were however mostly technical as the market observed no fundamental change over the past weeks.

Power

• The European power prices experienced a record volatility in October, driven by gas supply concerns for this winter and Putin’s announcements of potentially higher Russian gas flow to come in November.