Energy Market Analyst: October - December

Energy commodities continued to be hit by the global economic downturn, registering double digit losses during the last quarter of 2008. Oil prices retreated a whopping 55% to near 40 $/bbl at the end of the year, in essence on the back of a steep decline in demand as most OECD and non-OECD economies went into recession. European coal prices also plummeted dramatically, suffering from muted demand in the Atlantic basin and a fast slowdown of the Asian emerging economies. With the exception of late October, when a cold snap hit Europe, spot gas prices were generally depressed throughout Q4-08, on a combination of ample supplies and slowing demand. Forward gas prices tracked the movements of oil and also closed the quarter with significant losses. Prompt power prices also declined throughout most of the fourth quarter, on the back of the falling fuel and carbon prices, healthy generation margins, as well as weak electricity demand due temperatures above the seasonal norm and the impact of the economic slowdown. Forward power prices also responded to slumping primary energy and emission forward markets, and the expected impact of the economic downturn in electricity consumption. Carbon allowances were no exception to the generalised bearish sentiment. Despite long-term bullish signals coming from a stricter Phase 3 ETS, European carbon allowances also shed 34% of their value over the fourth quarter of 2008, on indications that CER imports could be enough to cover the current phase short and declining emissions from the industrial and power sectors.