News

Last week brought more volatility to wholesale energy markets, which is likely to have a knock-on effect on business buyers looking to secure new energy contracts. Oil prices, which have a significant impact on wholesale gas and electricity prices, continued to increase. Oil prices topped $70 briefly as US storage levels continued to decline. OPEC seems to be sticking to its strategy of cutting output, with no evidence of new rigs being deployed. Small increases in US output were not enough to hold prices down. Sentiment was also affected by political problems in Venezuela and Iran. There are also concerns that the unpredictable confrontation between Saudi Arabia and Yemen could block the Red Sea oil shipping corridor, which is one of the most important in the world. Closer to home, an earthquake triggered by a large Dutch gas field caused European gas output to contract and could have significant repercussions for gas bills in the UK. In the UK, demand for gas hit a high level as cold weather and low wind output combined to put more pressure on gas power stations. With more cold weather expected in the immediate future, demand is expected to remain high. The gas system is well supplied though and was long for much of last week. Two more LNG cargoes are on their way to the UK to further shore up supply, which is reassuring for buyers given the news from Dutch gas fields. Electricity prices also saw upward price pressure as a result of the increased demand for gas. Nearly all contracts saw significant gains last week, continuing the upward winter trend. Prices in 2018 and 2019 both increased because of oil and gas gains. Prompt prices also jumped on the same perceived risks, but longer-term prices held steady. With the weather forecast for the remainder of January turning colder, prices have tracked upwards, reversing all the losses seen before Christmas. This trend shows little sign of easing up anytime soon. Buyers should continue to monitor market movements closely, being prepared to contract up if there are any signficant falls.