Utilities Market Knowhow!
As of the 8th July, Gas and Electricity Year Ahead Wholesale costs were at similar levels when compared to last month’s report.
Oil has climbed from $63 to $64 a barrel, although has fluctuated between $59 and $66 in the last month. OPEC and Russia announced a further nine months of production cuts, through to March 2020. This had little impact on the market, which is still lacking confidence due to poor global economic growth forecasts. The main reason for this is the continued trade dispute between the US and China.
Weaker global demand and high stock levels have continued the decline in Coal prices, which are now at a two-year low. This may mean that some producers cut production in order to stabilise and stimulate prices, in the same way that OPEC attempts with Oil. Our use for generation has been less than 1% over the last two months.
Warmer weather reduced Gas heating demand, but with disruption to Gas supplies and fewer LNG deliveries, Storage levels reduced from 64% to 61% full. Looking ahead we expect LNG to continue to be an important source, due to increases in production levels.
Wind’s contribution to Electricity generation was higher but remains significantly lower than the levels we saw earlier in the year. Nuclear fell due to planned outages, whilst Gas once again made up the shortfall.
The Met Office is forecasting warm temperatures with fairly settled conditions. This will likely restrict the opportunity for higher levels of Wind and continue to pressure Gas prices. There is uncertainty as to which way prices will go due to domestic and global political instability and the effect this will have on the £ and the economy. The National Grid have said that a Brexit deal will not impact on our Interconnectors to Europe. There is more uncertainty as to what may happen if there is no deal, which is still a possibility. Sentiment can be a big factor for Wholesale costs.
What does this mean for me…
Wholesale prices are going through a period of relative stability, after steady losses from September 2018. These are still high when compared to 2015 – 2017 but do represent value. Our graphs show that historically prices start to tick up during the Summer into the Winter. This could be a good opportunity to secure all 2019 and early 2020 contracts.
The influence of higher third-party costs is increasingly noticeable in Electricity contracts. These include Transportation, Distribution and government policy levies. It is estimated, the Wholesale element makes up in the region of 45% of the Electricity bill and that is excluding the supplier margin, metering and VAT.
Should you require further information, contact your lpm Estates Manager
Life property Management work closely with utilities broker Indigo Swan to bring the best energy rates to their clients. Indigo Swan's Market Knowhow is a regular, comprehensive report on the position of the Utilities Market.
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