You may remember our market reports earlier in the year were encouraging early renewals and long term contracts, the sharp increases in recent months have made any contracts that were secured early certainly look like very good deals. The last few months have seen volatile market conditions and some sharp increases in wholesale prices, with Gas now 37% higher than 3 months ago and Power 27% higher. Driving these changes have been:
– Uncertainty over the UK economy with the referendum on the UK remaining in the EU
– A weakening on the pound sterling, making importing Gas and Oil more expensive
– Recovering Oil prices, supported by a weakening on the US dollar
– Attacks on Nigeria’s Oil and Gas infrastructure
– Increased outage at Rough Storage, the UK’s largest Gas storage facility, this has been extended to March/April 2017 and will mean no injection or withdrawal of Gas this winter. This tightens our Gas supply and demand balance and makes us more reliant on imports during the winter period.
All these factors have meant a steep upward movement in prices and the perception that prices are very high at the moment.
Are prices really that high?
Compared to prices seen 3-6 months ago yes, the prices are significantly higher. However you only have to look back as far as September 2015 for Gas & Elec prices at this level and when you look back further (see below graph) the current prices, relative to this, are not high at all.
So what should you do?
With so many variables market reporters are struggling to project which way the market will move over the coming months. If we have a period of stability in the economy and Oil & Gas industry, then prices may reduce, however with the tightening supply demand balance, any further worsening of this situation (further outages, colder than seasonal norm weather nearer the winter etc) have the potential to significantly increase prices. As the graphs show the current price rises look relatively small compared with recent years – we cannot assume that the current prices are ‘high’ or that we will see a return to levels seen earlier in the year.