Several months with very dry weather caused the Nordic hydro balance to fall to a massive deficit earlier this summer. The already weakened balance decreased to -40 TWh at the end of July, which is the largest deficit we have seen for seven years. As the big deficit collided with a period of low wind power production and high demand due to heat wave, the Nordic power market became very dependent on import from Germany.
Now, however, it appears as if the situation is changing. During a few weeks, the balance has improved from the -40 TWh deficit, to a deficit of now just 18 TWh. An 18 TWh deficit is still a lot, but it is not an extreme level like the one we saw in July. It is of course the changed weather conditions, with increased precipitation, that have caused the sudden change. The latest forecasts agree that the wet conditions will continue for at least the next two weeks.
The changed weather and the suddenly improved hydro balance have led to massive price falls on the Nordic forward market this week. During just three days of trading since last weekend, the Q4-18 contract has fallen by 3.55 EUR/MWh, equaling more than 7 %. The downturn has been just as big on the nearest monthly forwards.
Now, the market awaits, if the spot prices will start falling as well. During the heat wave, the system price was continuously around 50 EUR/MWh, and so far, the level has not decreased anything noticeable. The market appears to look for longer lasting periods of high precipitation before the spot price level will fall.
Even though the US-China trade war has limited the upside, the oil price continues to rise. We are now just marginally below the year high level.