Société Générale believes European energy prices will continue their decline this week on worries about a new widespread recession.

The front year contract for German power closed at EUR 56.90 per MWh, while Cal 12 coal settled at USD 126 per tonne and the December 2011 carbon contract ended the day at EUR 12.50 per tonne.

Société Générale said that "We think that the mood turned bearish last week, on account of a barrage of unimpressive economic data, and fears of a double dip recession in 2012 are clearly worrying markets and have started impacting prices negatively. For the past few weeks, dynamics for European energy prices have been driven by pronounced market sentiment, which in turn has pushed the volatility up and prices up and down."

The Philadelphia Federal Reserve Bank released its August survey on manufacturing activity up to July 2011. It said that "The influential survey’s broadest measure of manufacturing conditions, the diffusion index of current activity, decreased from a positive reading of 3.2 in July to 30.7 in the August release. The index is now at its lowest level since March 2009. These releases were reflected in the massive commodity and equity market sell off."

The bank said that "Fundamentals are relatively neutral for power, coal and carbon prices, with warmer temperatures expected in central Europe this week but this is set to be offset by higher French nuclear availability, the bank said. Price levels for the energy complex are linked to an anticipation of growth but the gloom and fear coming from global events point to a widespread slowdown."

(Sourced from Montel)