It’s been 100 days since we’ve seen the most extreme effects of the pandemic’s disruption of energy markets. Balint Balazs and Robbie Fraser —Schneider Electric’s commodity analyst experts – will take a look back at why oil markets rebounded, what that recovery means for other key economic indicators, who benefits and how the net zero trend starts to create impact. Then, they’ll look ahead to where markets go from here and how to prepare your organisation for the potential risks – and rewards – ahead.
In preparation, Balint and Robbie agreed to revisit some of the findings from earlier in the crisis: Compared to markets like crude oil, COVID’s impact on power markets has been much more regional. Power demand has generally been more resilient compared to the record drops for commodities like gasoline and diesel. Still, power demand, particularly from the industrial sector, is much lower than normal for this time of year.
Power prices are also being pressured by cheaper input fuel costs in many cases, with an oversupplied global LNG market reducing the cost of gas-fired generation. So, it’s certainly bearish in the short term. But demand is already recovering in most cases, the question is whether the current trend continues. COVID-19 is likely to bring continued uncertainty.
Consensus among major economists like those at the IMF tend to see a return to pre-COVID economic conditions by mid/late 2021 if things stay on track. (Certain sectors and regions are likely positioned for an even quicker recovery.) Of course, the more pessimistic projections extend that recovery date out as late as 2024. Nonetheless, the data is starting to build a strong case that, at least in terms of lost demand, the lows were already set back in March/April.
But the rapid changes in individual, societal, and economic behaviours could result in demand shifts, even if we assume a best-case scenario where we can mostly avoid further lockdowns.
Last not least, impacts in energy markets triggered by the net zero trend become more substantial, as legislation to foster renewables or phase out coal provides uncertainty at least for mid- and long-term contracts.