Bullish oil market could lift power prices

Boston, Mass, April 2, 2002 — Despite regional generation capacity additions and a preventative maintenance season, a sustained rally in the oil markets – combined with summer heat – could significantly strengthen power prices this summer, with the greatest impacts seen in such gas dependent areas as Nepool and WSCC, says ESAI in the latest North American Power Market Watch.

“We expect the current crisis in the Middle East to keep a strong floor under oil prices,” says Kristin Dall, senior analyst at ESAI, “Depending on the level of military escalation, watch for increasing fuel oil prices and a supported natural gas futures market, as non-commercial entities on NYMEX are likely to ‘go long’ energy in the near to medium term.”

In Northeast power markets, the Nepool forward price curve is being kept high by the summer risk premium despite capacity additions, surplus generation, and aggressive NEISO action to pre-empt shortages, says ESAI.

The oil rally and uncertainty regarding nuclear facility shutdowns in the near-term could shift prices further. PJM and NYCA have a similar outlook, as forward prices will be kept high despite capacity additions and heavy maintenance outages.

In WSCC, ESAI believes crude market developments should help shape the natural gas market for the short-term and add strength that may have been limited by improving hydro-generation resources in the region. “Nuclear facility uncertainty and maintenance season will lend additional support as well,” says Dall.

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