The Energy Markets Outlook For Spring 2017
As we enter the second quarter of the year, the energy markets are following the expected pattern of falling prices as we leave winter, as the weather warms up and supplies are under less pressure. Oil, being the predominant driver of price, has been weakening to a low of $50 per barrel with world bank predictions of an average throughout 2017 of $55 per barrel. Oil price, as well as regular deliveries of LNG being shipped to the UK of late, has created a bearish market.
As we look further out towards winter 2017 and summer 2018, these price reductions have been absorbed across both the gas and electricity forward wholesale prices with a wholesale reduction of approximately 9% since January.
What to expect over the coming Spring?
In the short term, we will see some further softening of prices, however, there is the risk of a sudden turnaround or at least a stagnation of reductions and although it is difficult to predict accurately we need to be vigilant. The first unknown is the long term market reaction following the triggering of article 50. Some analysts claim that any upside fallout is already priced into the markets and we have already witnessed the markets increasing since Wednesday. The second issue comes from the gas storage facility ‘Rough’ which has been dogged with problems for many months and currently is unable to take any gas storage injections until at least July. If, as we progress through quarter two this date slips, then it is likely that winter 17 prices will rise on the threat of a shortage of summer priced gas being available.
For businesses who have not contracted for the second half of 2017 onwards then it is all about timing to market, yes prices may still for a few weeks soften off a little more but one piece of bad news will certainly turn the tables and suppliers will add significant risk premium to forward prices negating any further downside. Therefore, it is recommended that the low risk option would be to secure your energy sooner rather than later.
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