ELS #Energy - New worries over market intervention?

Following the ‘solidarity contribution’ proposal issued by the European Commission, energy prices have fallen. Meanwhile, carbon prices spiked in the aftermath of EU Climate Commissioner Timmerman’s comment opposing a ceiling on such emission prices. Easing worries over ETS market intervention along with falling energy prices ultimately resulted in a strong downward price correction throughout last week.

This week, amid healthy gas storage levels and regulatory measures introduced to mitigate the impact of supply shortages in the coming winter, confidence in supply availability is returning to some measure. The European energy markets are expected to continue a mild price decline, despite the continued complete shutdown of Russian gas imports through Nord Stream 1. Colder weather spells are expected to drive heating demand across Europe while fossil fuel consumption for power demand is projected to rise following low wind speeds, but these bullish factors are alleviated by, for example, increasing Norwegian gas production.

Anticipated this week is the circulation of a letter among energy ministers, to be signed and sent to the European Commission later today. According to Politico, the letter asks for a gas price cap proposal to be ready for discussion by Friday’s meeting of energy ministers, with the anticipation of legislation to follow. “The price cap that has been requested since the beginning by an ever increasing number of member states is the one measure that will help … mitigate the inflationary pressure,” it reads. “The cap should be applied to all wholesale natural gas transactions, and not [be] limited to import from specific jurisdictions.”

ELS Analysis will be following the developments of the letter and the prospect of further ETS intervention. Nevertheless, we still expect fundamental drivers to have a substantial impact on the market.

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