Energy Market Risk Analysis – early March 2012

Oil hits £ and € record

Oil, having lost its influence over gas and electricity market direction for much of last year, is now very much back behind the steering wheel and being cited as a primary driver of UK gas and power prices. Part of the reason for this is that the current supply flashpoint for oil (ie Iran and the Straits of Hormuz) is an equally important flashpoint for gas (threatening key LNG supply routes). Oil is also instrumental in the cost of gas and power due to the fact that the price of oil has just reached an all-time high in UK Pounds and Euros, which makes it harder to ignore.

Although LNG (liquefied natural gas) deliveries to the UK are set to improve in the coming days, fears of a tightening global market are helping to prop up UK gas prices. Oil prices have also just hit a record in pound terms (£79/barrel), and perhaps more importantly in Euro terms – prompting concerns that they will push up the gas price in long-term European gas supply contracts, which have a strong oil price component in them. Furthermore, supply nerves are still jangling following the recent cold snap, helping to shore up shorter term prices.

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Energy price shift between 16 February 2012 and 04 March 2012

Elec: +3.29%

Gas: +2.42%

Coal: +0.13%

Oil: +4.66%
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