Brent crude oil prices climbed on Monday 25th September to over $58 a barrel and a 24 month high - up 10% since the beginning of the month. The last few days have seen the rate of price increases accelerate, however, we are now seeing this fall back slightly.
What were the drivers for oil price increases?
Recent supply cutbacks by the oil exporting cartel OPEC appear to be driving the general price increase, with growing market consensus that OPEC will likely extend its production-cut deal beyond March 2018. The production cuts appear to be meeting their stated aim of rebalancing the global oil market after months of oversupply, and US tight oil producers currently unable to fill the production gap that many thought they would be able to do. Market analysts now expect the oil price to be within the range of $55 to $60 a barrel for the remainder of the year with potential for higher levels next year.
In a further boost to the short-term crude oil market, the independence referendum in Kurdistan also has the potential to disrupt Middle East oil supplies. The autonomous region is seeking to break away from Baghdad’s control, which has led to the Iraqi government calling on neighbouring countries to boycott oil purchases from the Kurds, with the potential to remove an additional 500,000 barrels a day from global supplies and if this happened there would be even more likelihood of price increases. In addition, there are mounting political tensions - not least the North Korea-USA rhetoric and should this further escalate beyond words and insults premiums for oil already in storage will increase.
Has this affected UK business energy prices?
The recent jump in oil prices has led to a rise in UK energy market prices, with both gas and electricity contracts for delivery in the next few months posting significant gains throughout the day. This has reversed the recent decreases in the energy prices which was linked to the currency improvements for Sterling against both the US dollar (oil pricing) and the Euro (a significant volume of energy is imported from the continent).
Can these risks be managed?
Despite the recent volatility electricity and gas commodity prices overall remain well below the levels reached in 2014; however, these sizeable commodity price movements again underline the necessity for energy buyers to manage their energy purchasing within a robust risk management strategy and work closely with a knowledgeable team continuously monitoring the markets and assessing the relative risks from external factors and structural supply issues.
As we head into the winter months with uncertain weather conditions and variable supply of energy from our continental neighbours there are likely to be further price swings. The Inprova Energy Trading and Energy Risk Management team will be paying close attention to these drivers and seeking to manage the risks for clients as much as possible.
Looking to place your energy contracts in the coming months? Speak to a member of our team for further advice or request a free consultation using the link below.