Energy Markets Outlook – Are Energy Prices on the Increase this Summer?
As we head into the third quarter
As we head into the third quarter, energy markets have been, so far, very effective in riding all the storms that have surrounded them. At home we have had the general election with manifesto’s from all parties that threatened to intervene in the energy markets with capped prices for certain sectors, rumours of nationalisation and investment funding withdrawn. However, following the Queens speech none of these have been brought to the table for the new government term. Abroad we have seen OPEC agree to cut oil production but few of the major oil producers have actually taken this action and so oil reserves are high and the oil price has reduced accordingly. The Qatari troubles (a large provider of LNG to the UK) are ongoing but for the time being an agreement has been reached to allow LNG contracted deliveries from Qatar to continue via the Suez canal, and to add to what might have been the perfect storm, Centrica have announced in the last week the permanent closure of the UK’s largest gas storage facility Rough.
What does this mean for the Summer months?
Despite all the possible effects that might have driven prices in a particular direction, the energy markets have been very ‘range bound’, with slight increases one week but falling back the next as the markets try to predict the near term risks but when you look forward to winter and into 2018 and consider all the news, it is clear that the pressure on prices can only be in one direction and that will be up. It is now a matter of not IF but WHEN. Regardless of all the posturing of Governments around the world, the UK still has its fundamental needs of supply and demand which are continually under threat, Qatar, Rough Storage etc. and also the possibility of the downturn in oil production and the unlikely short term strengthening of Sterling against the Dollar. Therefore our recommendation to anyone that has yet to fix their electricity or gas contracts for 2017 or 2018 onwards is that the sooner you do this, you lower your risk of contracting in a suddenly increasing market. Remember prices always SHOOT up but only DRIFT down.