Italy: Power curve refuses to climb, despite oil’s gains
Italy's curve ignored rises on the continental power and Brent crude markets, and mostly held stable on Thursday, much to the disappointment of traders who lamented that prices are fundamentally too low at the moment.
Calendar Year 2012 Baseload inched up by €0.05/MWh day on day, while its French and German counterparts gained €0.75/MWh and €0.95/MWh, respectively.
One trader was particularly distraught by the contract's refusal to go up. "We're dying here, it's quite depressing," he said. "Absolutely there is room for Cal '12 to rise, because spark spreads are so low right now. But as soon Brent crude goes down, power will be squashed too, and I don't know who would generate at those levels."
Italy's Baseload capacity is mostly fuelled by gas, which is supplied through oil-indexed contracts. But while May Brent crude climbed to $126.50/bbl on Thursday, the euro's value against the dollar climbed by 0.66% to $1.48, keeping the cost of oil in Europe down.
The spike in Brent crude prices since December has caused Italian spark spreads to drop to previously unseen levels. The June '11 spark spread shed €0.51/MWh and Winter '11 fell by €0.48/MWh day on day.
Liquidity on the market remained relatively strong, however, with 90 deals registered on Thursday for a total of 395MW.
Q4 '11 was once again the most actively-traded period, with Baseload and Peak contracts changing hands 30 times for 30MW in all. Q4 Baseload and Peak traded 59 times between Tuesday and Thursday, whereas Cal '12 Baseload and Peak were dealt 32 times and the Q3 '11 contracts traded 14 times.
The contract is attracting attention at the moment because most power producers are in the midst of negotiating their gas supply contracts for Gas Year '11, which starts on 1 October. This makes Q4 particularly vulnerable to any oil price movements that could affect the gas contracts, one trader said. SS
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