How the Germans increase electricity prices in Greece – The danger points in the energy market according to IOBE

Risk points remain in the energy market, despite the return to a normal course, based on what IOBE reports in its report on the course of the economy in the first quarter of 2024, published yesterday. Something that, as mentioned by market players, makes it difficult to make any long-term forecast for the course of prices, both in wholesale and mainly in retail, which concerns citizens as well as developments on the inflationary front.

In addition, as the general manager of the “Natural Gas” company and also the president of the Hellenic Energy Suppliers Association, Mr. K. Mitropoulos, said yesterday, in relation to electricity, although safe forecasts cannot be made, he nevertheless estimates that electricity prices will not they will fall further, they will continue at the current levels and very likely a little higher in the month of May, always under the condition of course that there will be no unexpected geopolitical or other unscheduled developments. He also emphasized that the price increase in Germany has a chain effect on the prices of the other countries connected to the network. All this makes it difficult for providers to lock in forward contracts and therefore to capture relevant scenarios in the colorful invoices. Thus, in yellow, which have a more dynamic record of the situation, price reductions are expected to be more eloquently reflected.

On the same wavelength and the IOBE, which as stated in its report for the first quarter of 2024, “the growing geopolitical tensions in the Middle East and the expansion of the conflict in the Red Sea raise concern for the European economy. Additional trade disruptions could strain supply chains, hampering production and putting pressure on prices.

At the European level, a faster recovery in consumption, higher-than-expected wage growth and lower-than-expected decline in profit margins could hamper the deflation process. On the other hand, a more persistent transmission of even tighter monetary conditions could further delay the recovery in economic activity, pushing inflation lower. Climate change and the increasing frequency of extreme weather events continue to pose risks,” the institute said, adding that in the fourth quarter of 2023, lower energy prices and weaker economic dynamics reduced price pressures more than expected.

“Headline inflation in the fourth quarter averaged 2.9% year-on-year in the Eurozone, about 0.7 p.m. below the autumn forecast. The decrease came mainly from energy. In addition, weaker-than-expected economic momentum reduced price pressures in services and non-energy industrial goods. The dispersion of inflation within the EU remains high,” notes the IOBE report.

Challenges

Focusing on the future, the report states that the economy of Europe, and in particular that of the Eurozone, is facing a series of challenges. Briefly, the main ones are:

● The armed conflicts in Ukraine and the Middle East and the economic effects of high intensity and duration.

● New disruptions in energy supply could potentially have a significant impact on energy prices and the price level in general.

● In the US, a slower-than-expected deflation process may worsen global financial conditions.

● Monetary tightening may weigh on economic activity for a longer period of time and to a greater extent than anticipated.

● Need to coordinate fiscal and monetary policies at the collective and national level, in order to strike a balance between the objective of containing inflationary expectations and avoiding economic recession.

● Participation in the upcoming Euro-elections in June, as well as the dynamics of Euro-skeptics, are at stake.

● Increasing risks of natural disasters linked to climate change.

“The risk of a new round of pressures on international energy prices, combined with persistent inflation in basic necessities, create concern that the cost of money may remain high for a longer period of time” underlines the IOBE report and adds that:

“Following the last rate hike in September, the ECB has kept interest rates steady through the first quarter of 2024. Markets are discounting a gradual but slow move in key rates towards the end of 2024, remaining at levels higher than before the start of the upward trend. Indicatively, in the interest rate derivatives markets, the 3-month Euribor is estimated to be in the region of 3.1% at the end of 2024, from close to 4% at the end of 2023 and -0.5% at the beginning of 2022. quantitative easing tools, the ECB has suspended from mid-2023 the reinvestment of bonds maturing under the APP programme, while continuing the reinvestment of bonds maturing under the PEPP programmes, with a perspective until the end of 2024, with no net new markets.”

Persistent inflation

In relation to inflation, the IOBE reports that, “in the first two months of 2024, the Harmonized Index of Consumer Prices (HICP) increased by 3.2% (softer compared to +6.9% a year ago), ranking the country us in the middle of the ranking among Eurozone countries in terms of the rate of change, higher than the weighted average (+2.7%, from +8.6% a year ago).

In the HICP components, the increase in the index in the January-February period is due to the positive effect of domestic demand, as the percentage change in the index at constant taxes and excluding energy goods was 3.9%, up from an increase of 8.3% a year ago before. Indirect taxation essentially had no effect on prices in the period under review, just like a year earlier.

In the same period, structural inflation, a measure of the competitiveness of the domestic economy, rose to 3.4% from 8.2% in the corresponding period of 2023. It is also worth noting that a further increase was recorded in the rate of change of the HICP last March, by 3.4% (from 5.4% in the same month last year) (a fuller analysis of inflation, its key determinants is in section 3.5).

With regard to the prices of energy products internationally, the average international price of oil in €, which is a key component of energy costs, in the period January – February 2024 marked a weakening (-1.9% lower than the corresponding 2023 period), boosted by the rise in the average exchange rate of the euro against the dollar. In contrast, last month the average euro oil price rose 7.2% from a year earlier, despite the euro’s continued rally against the dollar.

Further upward effects on the price of Brent oil can be had by the increase in global demand, due to the stimulation of economic growth, as well as the recent war turmoil in the Middle East, which pose a significant risk to the stability of the energy markets,” says IOBE.

The market

In the meantime, speaking to journalists yesterday, the general manager of the company “Natural Gas” and also the president of the Hellenic Association of Energy Suppliers, Yannis Mitropoulos, focused on how difficult it is to make a long-term forecast for the course of prices, especially in electricity, where there is a high degree of complexity .

Referring to the international prices of natural gas, Mr. Mitropoulos stated that after the record highs during the energy crisis, prices have fallen significantly and have recently fluctuated at a level close to 30 euros/MWh. Geopolitical developments do not seem to allow a drop below this level easily even though a few weeks ago the TTF price had fallen close to 23 euros. Although it is difficult to predict the next movements, Mr. Mitropoulos believes that it will continue to move at the current levels, maybe even slightly higher in May, provided of course that there will be no unexpected developments.

According to Mr. Mitropoulos, in relation to electricity, although safe predictions cannot be made, he nevertheless estimates that TEA prices will not fall any further, they will continue at the current levels and very likely a little higher in the month of May, always under the provided, of course, that there will be no unexpected geopolitical or other unscheduled developments. He also emphasized that the price increase in Germany has a chain effect on the prices of the other countries connected to the network. All this makes it difficult for providers to lock in forward contracts and therefore to capture relevant scenarios in the colorful invoices. Thus, in yellow, which have a more dynamic record of the situation, price reductions are expected to be more eloquently reflected.