By Paul Gleaves, Head of Risk & Trading
You may have seen the news coverage over the weekend reporting a significant slump in global oil prices and equities. As such, we wanted to provide an update on the impact this is having on wholesale electricity and gas prices, given that oil is a key driver of UK energy markets due to oil indexation on European gas contracts.
So far the UK Gas and Power markets have remained relatively resilient, with the Winter ‘20 electricity product trading down by 3.25%, while the gas market is being bid down at similar levels. Indeed, at this stage it is difficult to gauge exactly how much of these falls are being driven down by oil markets, as we have similar price moves at the front of the curve as Day Ahead markets have plummeted by over 10% this morning on the back of warmer weather and higher wind output.
Oil prices collapsed this morning after Saudi Arabia shocked markets by announcing that it planned to increase its oil production in a bid for market share, sparking fears of a price war with Russia and other OPEC members. Last week, it had been widely anticipated that the OPEC nations, plus Russia, were set to announce a drop in global oil supply of 1.5 million barrels per day in order to combat the already low prices, and fears of global oversupply in the wake of the coronavirus. This about-turn has seen crude oil prices slump to $36/bbl this morning, a fall of around 20% since Friday’s close, as investors pull money out of commodities and equities, and switch to the comparative safe-havens of bonds and the yen.
It remains to be seen how sustained the fall in oil prices will be, and how much this will feed into UK energy markets given that traders have been reluctant to extend their short positions beyond 2020 due to uncertainties over what the UK energy market will look like once the UK’s transition period with the EU has run its course.
Carbonxgen will continue to monitor the markets and keep you posted should there be any major movements. You will also be kept up-to-date with the latest market news via our weekly energy market update.
To speak to a member of the procurement team, get in touch:
Call: 01252 560 379