Azernews.Az

By Bloomberg

European energy prices will stay subdued through next year, capped by oil’s slump to a six-year low and an unprecedented boom in renewable power, according to CF Partners (UK) LLP, a trader and energy risk manager.

Oil, used as a price link in long-term gas supply contracts, is unlikely to rally for at least six months, Christian Coles, head of gas and power trading at London-based CF Partners, said in an interview, without providing specific forecasts. Wholesale German electricity prices may never recover from record lows amid the influx of solar and wind power.

Brent crude collapsed 57 percent from its June 2014 peak in a supply glut fueled by unfettered production from OPEC nations and brimming U.S. stockpiles. Gas in Europe is trading at the lowest since 2010, while coal is in the longest price decline in at least seven years as demand slumps in China.

“Once oil starts picking up it will drag everything else up except German power, which has been pressured by the renewable generation,” Coles said Aug. 13. “I struggle to see any upside in German power, and there is no reason for coal to rally.”

German power for delivery in 2016 slumped 10 percent in the past year, touching a record 30.80 euros ($34) a megawatt-hour on Aug. 10, broker data show. It was trading at 30.90 euros Wednesday.

Gas in the U.K., Europe’s biggest market for the fuel, may trade at 43 pence to 46 pence a therm ($6.7-$7.2 per million British thermal units) by the start of this winter, Coles said. That compares with 43.8 pence a therm for winter gas on the London-based ICE Futures Europe exchange Wednesday. Colder-than- expected weather may add as much as 15 pence to that, he said.

While the unresolved dispute between Russia and Ukraine, limited capacity at the U.K.’s Rough storage site and cuts in Dutch production may affect gas prices, any impact will be muted by ample alternative supplies such as more liquefied natural gas cargoes into Europe.

“We are going to see lowish gas prices but they will be prone to spikes if we have very cold winter,” he said. “The spikes won’t last long.”