Business Energy Market Brief June 2012
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Business Energy Market Brief June 2012

Chris Hurcombe

by Chris Hurcombe 01 June 2012

Report Summary:

Energy Market Brief June 2012

Energy Market Brief June 2012

Deepening eurozone crisis sees energy prices plunge - The fallout from the Greek elections renewed eurozone instability fears during May, forcing GB wholesale energy prices to drop and international energy markets to reach new lows. Annual coal hit a 20-month low of $98.8/t on 24 May on continuing weaker demand from the Far East, while the same day month-ahead Brent crude oil slipped to a five-month low of $105.6/bl. Carbon also struggled to bounce back after recent record lows. These factors helped drag annual gas and electricity prices down.

On average the annual October 12 gas price lost 5% during May and bottomed out at 61.2p/th on 24 May. Annual October 12 baseload electricity price saw a 4% drop over the month, reaching a two-year low of £47.25/MWh on 18 May. Prices for annual gas and electricity are now 9% and 18% lower respectively than they were a year ago. Gas and power prices have only fallen to these levels once in the past 12 months––in January when a mild winter drove prices below 65p/th and £50/MWh.

Warmer weather erodes short-term energy contracts too

Short-term prices were similarly affected by falling oil and coal contracts. But lower demand, spurred by the warmer weather, also helped to suppress prices in May. Day-ahead gas dropped to a four-month low of 53.1p/th on 28 May and averaged 57.5p/th over the month. Prompt prices have now fallen 13% from the peaks seen in February and March. Baseload electricity on the day-ahead market also fell to a five-month low of £40.0/MWh on 28 May. The short-term price averaged £44.0/MWh in May, which is 17% below the peak in February. But this is still £2/MWh more expensive than the £42.0/MWh low seen in January.

Energy prices could reduce ahead of summer

Some traders believe continuing low coal prices will encourage generators to use coal-fired stations as much as possible this summer, keeping near-side power prices low. This driver could be accompanied by a continued fall in oil prices if economic uncertainty continues. Lower oil prices should also continue to act as a drag on gas. But prices will remain volatile as the EU continues to compete with high Asian demand for LNG and geopolitical events in the Middle East show no signs of easing.

Catalyst Energy Solutions’ independent approach enables clients to manage their exposure to energy price risk, while at the same time benefiting from a first-class service. Our procurement solutions make it simple: contact a member of the team on 0870 7107560 to discuss your energy requirements.