How will falling oil prices and strong output impact UK energy prices?

The impact of continuing low oil prices in the UK could keep prices in check, but its effect remains to be seen, according to business energy broker ENER-G Procurement.

Peter Pharoah, Head of Energy Markets at ENER-G Procurement, said: “OPEC’s latest decision is to leave oil-output unchanged at 30 million barrels per day, despite oil prices falling to a four year low. Many energy market participants expected an announcement from OPEC that it would cut production to support the oil price, with many members reportedly needing a price above $100 per barrel to balance national budgetary requirements.

“OPEC is dominated by Saudi Arabia, which produces more crude than Iran, Iraq and Qatar put together. It therefore has a strong influence on OPEC decisions and has significant financial assets to resist the effects of low oil prices. Indeed, Saudi Arabia may be playing a long game – OPEC member states have been hurt by the glut of supply coming from the US shale revolution, but as the price falls, some shale oil may become uneconomic to produce. Supply could fall and OPEC could claw back some of its previous dominance.

 He continued: “We are watching with interest the effect on energy prices in the UK. The UK gas and power markets are, in theory, linked to the oil price through long term legacy contracts in Europe pricing in relation to oil and oil products. The proportion of energy pricing through this route is falling as non-oil indices become more trusted and mature – the UK is more exposed to fluctuations in the LNG price than European market levels. However, the way that large falls in oil prices affect the sentiment of market direction cannot be ignored.”

 ENER-G Procurement publishes free energy market intelligence reports – designed to inform energy purchasing decisions.

 

 Further information: www.energ.co.uk/procurement

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