British gas prices dived again on Monday as warmer weather cut forecast demand, while another nuclear power plant restart over the weekend helped drive down wholesale electricity prices. The price of gas for delivery on Monday plunged from 44 pence per therm at the end of last week to 39 pence, while the rest of the working week dropped four pence to 38.80 pence as demand for the heating and power generation fuel dived to well below normal for the time of year. Power prices also fell sharply, driven down by the restart of the Heysham 1-1 nuclear power reactor over the weekend, leaving only two of British Energy’s BGY.L 16 reactors still offline on Monday. “Power plant availability looks quite good,” one power market trader said, adding falling gas prices and demand were also behind the drop in wholesale electricity costs.

Baseload electricity for Tuesday fell to 39.25 pounds per meagwatt hour, compared with 44.50 pounds paid at the end of last week for Monday baseload contracts, while March power contracts fell to around 39 pounds from 42.00 pounds on Friday, as gas contracts for next month dived 5.5 pence to 38.75 pence, according to brokers. The National Grid website showed the national gas network was well supplied with fuel, in part because demand was forecast to be 27 million cubic metres below normal for the time of year on Monday, while demand is forecast to fall further still on Tuesday.

Forward gas prices also slid, following another fall in oil prices, with Summer 2009 contracts dropping 3.50 pence to 36.30 pence per therm and Winter 2009 similarly softer at 52.60 pence.

Oil prices climbed above $38 a barrel on Monday after the International Energy Agency (IEA) said there could be an oil market supply crunch from next year once global oil demand begins to recover. The IEA warning gave upward momentum to a market undermined by a raft of bearish economic data from Asia. Japan’s economy shrank in the last quarter by its most since the first oil crisis in 1974, hit by an unprecedented slump in exports, which is likely to lead to more calls for extra stimulus steps to fight the deepening recession. The impact of the recession is also being felt in South Korea, where January exports dropped by a record 33.8 percent from a year earlier, even worse than forecast. U.S. light crude oil futures for March delivery were up 65 cents at $38.16 a barrel by 1004 GMT in electronic trade, after gaining $3.53 on Friday. The New York Mercantile Exchange is closed for Presidents Day and will reopen on Tuesday. London Brent crude for April rose 29 cents to $45.10, maintaining a premium to U.S. oil due to high stock levels at the main U.S. storage hub in Cushing, Oklahoma. The IEA’s executive director, Nobuo Tanaka, told reporters on the sidelines of a conference in London he expected world oil demand to resume growth from next year, rising by about 1 million barrels per day (bpd) in 2010. “Currently the demand is very low due to the very bad economic situation,” Tanaka said. “But when the economy starts growing, recovery comes again in 2010 and then onward, we may have another serious supply crunch if capital investment is not coming,” Tanaka said. Analysts see most oil prices trapped within a fairly tight trading range for the time being. “We continue to maintain that crude prices will be trapped in a sideways band for the next several weeks,” brokers MF Global said in a note to clients. “Rallies above $50 look vulnerable, as given the deteriorating global macro backdrop, we do not think prices north of that level will be sustainable.” Oil’s jump on Friday was largely boosted by renewed optimism that a giant U.S. stimulus package could help pull the economy out of a 14-month recession, while the gains were further encouraged as traders booked profits by selling the spread between front and second month futures contracts. U.S. President Barack Obama on Saturday hailed congressional approval of the $787 billion economic stimulus bill as a major milestone in the country’s economic recovery and the White House said he would sign the legislation on Tuesday.

Oil prices have tumbled from their peak above $147 a barrel last year, as the economic downturn has spread to all regions of the world, cutting energy consumption. Analysts see downside risks for oil, as economies struggle through their worst recession in decades. U.S. economic data due to be released on Tuesday include manufacturing production in New York State and U.S. home builder sentiment for February.

EDF Energy became the latest UK energy supplier to lower its fuel bills, announcing it was trimming its UK electricity prices by nearly 9% per cent from March 31st. However, the cuts will only benefit consumers in the south, Wales and Scotland and not those in the Midlands or Northern England. The announcement, which will benefit around 2.3 million households, or around half of EDF’s 5.5 million total, has raised the pressure on Scottish Power and N-Power, the only two major UK energy suppliers who have still not yet cut their bills this year, to do so soon. Some standard rate electricity customers could see as much as a 12.5 percent fall in rates, the French-owned company said. The group’s gas prices have also been left on hold, despite steep falls in the wholesale price of gas in the past eight months. “In this time of extremely volatile energy markets, EDF Energy continues to ensure very competitive prices for our customers,” Eva Eisenschimmel, head of brand performance at EDF Energy, said in a statement. “In 2008, we passed on the lowest gas price rises of any of the major utility suppliers.”

British Gas, E.ON and Scottish and Southern Energy have all cut some of their prices already this year although critics say the cuts do not go far enough following a near halving in the wholesale price of energy since last summer. E.ON also left its gas prices frozen after hiking them by 41 per cent in 2008. The announcement came as N-Power agreed to repay £1.2 million to some 200,000 customers after a probe by regulator Ofgem. Ofgem said Npower agreed to “put things right” after the watchdog completed an investigation into changes to its gas tariffs in 2007. Ofgem said Npower’s approach to telling its customers about the changes meant some households whose consumption was low lost out financially.

The financial crisis has left many assets and sectors battered and bruised. The stock market is down by more than 30% over the past year. The global economy is on its knees but history suggests that equity markets will begin their recovery before GDP figures start to show strength again.

Investors who will gain the most will be those with either the nous or the brass neck to get in early. There are some fund managers that reckon that the fall in the oil price could open such an opportunity. The question is whether those investing in the sector now are jumping the gun?

Oil reached a peak of just under $150 a barrel last year, today it stands at jaround $40. The demand that pushed the price to record highs has slumped as many global economies have slowed. Some analysts are reticent to suggest how long the global recession will last, but when the stimulus injected by central banks begins to filter through the demand for oil will pick up.

Several already believe that investors should start to look at oil, they do not say the price has bottomed or a spike in the price is imminent, but they reckon that a floor cannot be too far away.

Demand for oil has collapsed because of the very weak economic conditions, and the price of oil has fallen as a result. Production is also falling – non-OPEC production peaked last year and is now on the decline.

This week, crude fell after the US Energy Information Administration revised down its 2009 global oil demand forecast by 400,000 barrels per day from its previous outlook, predicting demand will fall by 1.17 million bpd this year from 2008 levels. US crude stands at around $34 a barrel. London Brent stands at $45 a barrel.

But Killik, the stockbrokers sent a note to investors reckoning the “momentum is negative and crude is approaching oversold levels – short-term traders should go long at current levels with a tight stop loss’.

Mick Gilligan, an analyst at Killik says the price of oil is wrong in the medium term and says that his clients are buying exchange traded funds to benefit from the low price – particularly US oil which is lower than the price of Brent crude.

Chris Wheaton, Director, RCM, the specialist equity company of Allianz Global Investors, says: “Oil has been included in the January sales. Even if oil is only $50/barrel in 2010 it makes for a great investment opportunity right now. Low prices are encouraging more energy use – for example, gasoline demand in the US is now at the same level it was last year despite all the talk of a weak US economy. Sometime in 2009 or early 2010 we expect oil demand across the world to start to grow again.

“The credit crunch and uncertainty over oil prices are causing investment in new oil fields to be put on hold. However the big trends, such as rising energy use across emerging markets and natural declines in existing oil production won’t disappear and will continue to push oil prices higher. This means were certainly going to have $100/barrel oil again by 2013, and makes longer-term investments in energy at today’s prices look very attractive.”

Robin Batchelor manager of the Blackrock World Energy fund says that both oil and gas prices are trading below their marginal costs, which are unsustainable for any reasonable time frame – but he admits that economic woes do raise concerns on the demand side of the equation.

He says:”However, energy equities are trading at P/E multiples at a discount to the broader market and are generally supported by asset valuations. Almost all the companies in the portfolio are well-capitalised and generating cash. At some point in the relatively near future, we believe fundamental factors will regain their importance as investors again return to traditional valuation techniques.”

Gary Dugan, Chief Investment Officer, EMEA, Merrill Lynch GWM, reckons that for those who want to trade oil, we are very close to buying levels – anything below $35 is a buying opportunity.

He says: “When the oil price starts to move towards $30 a barrel it starts to cost more to extract oil than producers can get by selling it, so production facilities get shut down as they become uncommercial. We expect the annual production of oil to fall by as much as 5pc a year over the next five years, which should create a floor for the oil price. We believe that oil will bottom out at around $30, and will average between $40 and $45 over the course of 2009, subsequently rising to around $55-60.”

But before investors rush to get a piece of the action, there are some who are not so sure now is the time.

Ian Henderson, who manages the JPMorgan Natural Resources Fund, is not convinced that now is the ideal time to invest in oil related plays – mainly due to the uncertainty of the US, which he says will dictate sentiment. He continues to bet on gold which makes up the lionshare of his portfolio at this juncture.

“The long-term view remains in tact but there is so much global uncertainty. But there are dozens of cargo ships floating around refineries because demand for oil is weak -there is plenty of oil floating around – it could be that we will have to wait until that is through the system before the price rises,” he says. “However, many oil companies have strong balance sheets having been buoyed by the high price in the past which makes some oil stocks a useful hold for those looking for dividends – although so too do the likes of Vodafone and Glaxo.”

For investors wanting to take advantage of any future rises in the price of oil, there are a number of choices. You could invest directly in the shares of the oil majors and production and service companies. Other options include investing in funds that look at the oil sector (Guinness Global Energy, JPM Natural Resources, Investec Energy), or in an exchange-traded fund, which is an investment vehicle that holds assets such as stocks or bonds.

Oil shares do not move directly in line with the oil price because there are other factors at work such as management skill, debt and the costs of distribution. However, there is a correlation over the longer term and they are paying decent dividends.

Remember that oil stocks in the UK make up a significant chunk of the FTSE100 so any tracker fund or General UK Growth fund that does not veer too much away from the index will benefit from any pick up in demand for oil – and those bumper dividend payments.

Energy firm E.On has announced it is lowering its electricity prices by 9% for most of its customers. E.On says 4.1 million households will benefit from the reduction, which comes into effect on 31 March. It is not reducing its gas prices. E.On said it knew its customers were facing a difficult time and it continued to monitor the market. The move follows price cuts by competitors British Gas and Scottish & Southern Energy. British Gas is to cut its gas prices by 10%, effective from 19 February. Scottish & Southern will cut the price of electricity by 9% and gas by 4% from 30 March. A spokeswoman for E.On said it was not reducing the price of gas because it had “offered one of the lowest prices for gas throughout the winter months when our customers have needed to use more gas to heat their homes”. “Electricity usage is far more stable throughout the year and we feel our customers will benefit more from this decrease as we approach the warmer months,” she said.

BP’s British Innovator liquefied natural gas tanker was expected at the UK’s Isle of Grain import terminal, from Trinidad & Tobago, on February 21st, according to AISLive ship-tracking data on Reuters. The 138,000-cubic-metre tanker was last seen on Wednesday off the coast of Tobago, according to the data, and is expected to arrive in time for a berthing slot at Grain on Feb 22. BP owns capacity at the Isle of Grain terminal near London and has sent a steady stream of cargoes to the terminal since its recent expansion. The latest, BP’s British Trader, arrived there on Monday. A BP Trinidad & Tobago official said last month that the company has stepped up shipments of the super-cooled gas to the UK to take advantage of the higher prices there. BP and Sonatrach were the original capacity holders at the terminal when it opened in 2005, with France’s GDF Suez and Britain’s Centrica now also owning capacity.

Gazprom Marketing & Trading hopes to start supplying power to UK businesses and industrial customers within the next few months. The UK-based arm of Russia’s Gazprom, which currently supplies natural gas to UK commercial users, applied last week to energy regulator Ofgem for a UK electricity supply license. Ofgem is expected to give its consent by early May, when the company will enter into discussions with its customers and offer them an electricity deal. Gazprom M&T spokesman Philip Dewhurst said the company is already gearing up to sell power from its retail operations office in Manchester.

It is in the process of purchasing the IT system of former independent supplier BizzEnergy, which collapsed in November 2008, citing the financial constraints imposed by the credit crunch and an industry dominated by giants. “We’re looking to acquire BizzEnergy’s IT system, which will enable our traders to buy and sell power,” said Dewhurst. “It’s been our ambition to enter the power market for some time, and
we’re doing it organically,” Dewhurst added. Dewhurst said the company currently employed a team of around 30 retail specialists up in Manchester, but would be looking to add power specialists to the team shortly. “We’ll get the license first, then start marketing to our customers. We hope to start supplying power in the next few months,” Dewhurst said. Supplying electricity to business customers marks a change of strategy
for the company, which currently only operates in the UK’s wholesale, rather
than the retail, power market. The company, which is headquartered in Kingston-upon-Thames, Surrey, has grown rapidly over the past two years in the UK commercial gas market and now boasts 14,000 customers in UK and Ireland, around a 4% market share.

It entered the UK business supply gas market in 2006, when it bought a small supplier called Pennine Natural Gas and has been growing its business organically since then. Gazprom has long declared its intention to enter European power markets. The company already has signed memorandums of understanding for joint ventures to build two new natural gas-fired combined cycle turbine plants in Germany. It does not have any electricity generation in the UK.