Energy Markets in All Their States

In a national address delivered in July 1979, U.S. President Jimmy Carter declared that “our shale alone contains more oil than several Saudi Arabias.” In light of the projections of the International Energy Agency, it appears that there is no real need to bring those barrels out of the ground, as the supply–demand imbalance* is clearly reflected in the swelling of inventories. And with the U.S. benchmark crude price at $60 per barrel** (WTI), local producers have little, if any, price incentive to heed their President’s exhortation (“drill, baby, drill”).

This restraint in oil prices, combined with a pullback in gas prices, has a range of impacts. For Europe, which is a net importer of petroleum products, this is undeniably good news. Recent trends are restoring purchasing power to households and easing energy bills for industrial companies. This decline will also have a disinflationary effect on the region, even if the ECB continues to focus on underlying inflation (excluding volatile components).

For the United States, while the macroeconomic impact is less clear given its oil—and especially gas—exports, this price adjustment fits into a broader logic of “administered” prices as the midterm elections draw closer. With approval ratings for the President’s economic actions at a low point (42%), he likely sees this decline—and, by knock-on effect, the fall in gasoline prices—as a boon. Along the same lines, the current administration has entered into negotiations with pharmaceutical companies to reduce drug prices. Extrapolating this approach naturally raises questions about the risk of interventionism in public utilities, with a view to curbing energy bills for U.S. households.

Driven by hyperscalers and the massive capital expenditures allocated to data centers, electricity consumption from these new AI-dedicated infrastructures is expected to be equivalent to twenty times that of New York City by 2030, according to NEMA***. Faced with this sudden resurgence in energy demand growth after two decades of stagnation, operators of the aging U.S. power grid will need to invest heavily in cables and substations. As a result, Iberdrola’s subsidiary has requested a 23% increase in its electricity prices in New York State to finance this wave of investment.

Another side effect of the ongoing AI revolution is that the potential renaissance of the U.S. nuclear industry is being called into question by a “simple” supply issue. Indeed, the World Nuclear Association notes that in 2024 uranium demand has already exceeded supply by 12% (offset by inventories and secondary supply) and forecasts demand growth of 30% by 2030 (to 86 kt) and to 150 kt by 2040. Against this new industrial paradigm, the time lag between discovery and production of a new mine (at least 10 years), combined with the decline rates of existing mines, raises concerns about a medium-term supply deficit.

Upstream from consumers benefiting from more attractive prices at the pump, the oil industry is bearing the full brunt of lower prices, as reflected in third-quarter earnings reports (-10% year-on-year EPS in Europe). In the face of declining cash flows, management teams at the major oil companies have little choice but to scale back shareholder returns through less generous share buybacks. Some are also taking the opportunity to cut back on their transition-related spending. To their credit, the regulatory environment continues to evolve, as illustrated by recent U.S. administration decisions regarding wind power. The result has been yet another goodwill impairment at Ørsted, the former Danish darling of investors, whose share price is down 25% this year and 80% from its January 2021 peak.

Further south in Europe, the conclusions of the government report on the blackout experienced by the Iberian Peninsula do not find that solar energy was at the origin of the series of grid overvoltages that triggered the automatic disconnection of several generation capacities. Beyond political considerations, grid operator Red Eléctrica has recently warned of the risk of another large-scale outage and has urgently requested regulatory approval to change its operating procedures in order to better manage potential overvoltages. While awaiting an elusive energy “silver bullet,” the operator has systematically relied on gas turbines since the incident to stabilize the system.

In September, the European Commission organized a conference with Mario Draghi, one year after the publication of his well-known report on European competitiveness. He reiterated that energy policy is the backbone of the economy. In this respect, lower energy prices are unquestionably good news for Europe, but they must not distract policymakers from the essential efforts needed to improve the competitiveness of local industry operating in an increasingly polarized world…

* The Agency anticipates a surplus of 4.1 mb/d in 2026.
** -17% since the start of the year, near the bottom of performance rankings across all asset classes.
*** U.S. lobbying group representing electrical equipment manufacturers.

Pierre Pincemaille, General Secretary of Investment at DNCA. This article was finalised in December 12th, 2025.

This promotional document is a simplified presentation and does not constitute a subscription offer or an investment recommendation. No part of this document may be reproduced, published or distributed without prior approval from the investment management company.

DNCA Investments is a trademark held by DNCA Finance