The Bord Gáis Energy Index fell 6% in April following another tumultuous month in global energy markets as restrictions to combat the spread of Covid-19 continued to impact economic activity and energy demand.
After falling over 50% in March, oil prices managed to claw back some ground in April gaining 11%. Oil, however, was the exception as the other components fell back over the month. Day-ahead gas prices fell 39% in April as the supply glut continued, while electricity prices dropped 19% due to lower demand. Coal experienced a similar drop to electricity, falling 19%, as weak fundamentals and increased competition from gas and renewables pushed coal to multi decade lows.
In April, the Bord Gáis Energy Index closed at 44, a fall of 6%, which represents a record low in the history of the Index.
David Grainger, Energy Trader with Bord Gáis Energy, said, “The Bord Gáis Energy Index fell by 6% in April 2020, with oil being the only component of the Index to grow, rising from historic lows to close the month 11% up. The Covid-19 outbreak is continuing to impact the wholesale energy market with a 39% decrease in gas prices and a 19% fall in both electricity and coal prices.”
Oil prices begin to climb…
Since the start of the year, due to trade disputes and softening demand, oil prices have dropped by over 60%. This fall brought the key players in the industry, colloquially referred to as OPEC+, back to the negotiating table in early April where producers, led by Saudi Arabia and Russia, eventually agreed to cut 9.7m barrels of oil production for May and June.
Despite the historic production cut, oil prices continued to retreat, with Brent prices dropping under $20 a barrel in the third week of April and the US WTI May contract settling in negative territory for the first time ever as producers paid buyers to take oil off their hands.
Toward the end of the month, oil prices managed to regain some ground as countries started to ease lockdown measures and we saw falling US rig counts and production. The Brent crude benchmark contract closed the month at $25.27 a barrel, an increase of 11%.
Gas prices fall 39%…
The NBP day-ahead contract, the price of gas for next day delivery, settled at 14p/th in April, a decrease of 39% on the month in euro terms, as the market remained in the grip of a gas glut. The combination of weak demand due to lockdown restrictions and warmer temperatures and robust supplies weighed on prices.
Gas markets were already suffering from weak demand even before the virus hit but the additional demand destruction due to lockdowns has exacerbated the situation. Demand is also unlikely to pick up in the near future, as the effects of the current crisis on the global economy are likely to persist.
Electricity falls 19% in April…
The average day-ahead price for electricity fell 19% from €34.3/MWh in March to €28/MWh in April.
Wind output met 25% of demand in April, which was down from 44% in March. Although lower wind output would normally support prices, the impact of lower wind was offset by falling gas prices and lower electricity demand.
Coal settles 19% lower and the euro falls in value…
Coal prices were down in April amid weak fundamentals and a bleak outlook due to ongoing Covid-19 containment measures. Coal prices fell 19% in euro terms in April settling at $39.85 a tonne, its lowest level in over twenty years. The euro fell against the pound and the dollar in April, settling 2% lower at £0.869 versus the pound and 0.3% lower at $1.094 against the dollar.
For more information, see the full Energy Index at bordgaisenergy.ie/energyindex/