Last week energy prices increased across the curve for both electricity and gas, though they showed signs of falling off towards the end of the week and that trend has continued this morning.
The trend last week was an interesting case study in how prices can be driven by sentiment rather than fundamentals. The main driver was the anticipated cold weather towards the end of the week. However, throughout the week, the gas system was long on supply and oil prices certainly at the start of the week were depressed.
Normally this would result in the energy prices reducing. And then as the cold weather arrived the energy prices started to decrease, despite the fact that oil prices started to recover as China’s demand for oil increased, and as the pound weakened again.
The impact that the weather has on energy prices
Weather forecasts certainly seem to be having a major impact on energy prices in the short term. Looking forward therefore, the end of January’s forecast to be warmer than average, as is February, and we might therefore expect energy prices to remain depressed, and certainly we’re seeing that coming through in this morning’s figures.
Shale gas production
Further out on the curve, I mentioned last week, that we might expect prices to remain suppressed on the back of a surplus of LNG which may find its way into the UK and Europe later on in the year. We’ve also got growing confidence, coming out last week, that there will be approval to produce shale gas in the UK, towards the end of this year, which is likely to also help keep prices low.
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