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Energy Market Review 2016

Written by Love Energy Savings at 10:20

As another year ends everybody starts to look back and review the passing year. Here at Love Energy Savings, we have been following the energy markets with interest and we’re here to give you an overview of the trends from 2016 along with our predictions for 2017.

A recent webcast hosted by Energy Live News, and featuring Mark Linke of British Gas, gave an expert overview of the current market situation, looking back to trends seen throughout the year and providing key insight which should help business owners plan their future energy purchasing decisions.

Economic Overview

It has been a rough year for the economy; with worldwide turmoil and drastic political change impacting trade, currency and confidence. Global forecast were revised down in 2016 by 0.4%, primarily due to economic uncertainty in the face of Brexit, the rise of populist parties in Europe, and Trump’s victory in the US Presidential election.

Instability has led to currency fluctuations and inflationary pressures, both of which affect the energy market and cross-border trade. China’s growth has also slowed and India remains unstable adding further fuel to the fire. However inflation is recovering so the outlook for 2017 may not be as bad as first thought.

Oil

Despite a dip earlier in the year, oil prices have recovered but forecasting future trends remains difficult. Due to past predictions turning out to be incorrect, confidence in the foretelling of market movements now seems to have lost authority.

The issue of oversupply and lessening demand continues to lie at the root of the issue and while OPEC countries have since agreed to stem their supply by imposing lower quotas, the tendency for members to flout these caps is all too well known.

The US has reduced its supply in response to price movements and there has been a reduction in global stockpiles but the price volatility of this commodity is showing no signs of calming down over the next 12 months.

Coal

Like the oil market situation, an oversupply and decreasing demand is affecting the global gas market. Having said that, prices have increased by 80% over the year due to numerous global events requiring gas to fill a supply gap.

Nuclear outages in South Korea and France led to coal being called upon to satisfy demand. China’s policy of reducing worker hours to five days a week also helped decrease the Asian supply by 16%. Furthermore, Pacific supply was disrupted due to bad weather meaning that oversupply was limited somewhat.

Due to the nature of these events being unpredictable, it is expected that stability will be short-lived especially with an increase in renewable production and new nuclear projects kicking off in 2017.

Gas

Prices have been lower in 2016 due to lower demand. This is primarily attributed to the warmer weather we have experienced this winter, stable transportation and a low number of outages allowing supply to remain stable.

One thing to look out for is the fact that the power markets are increasingly having an influence on the gas market, and this will increase volatility in terms of pricing.

Gas demand is also highly weather dependant so if January sees a drop-in temperature as we saw in 2016, it could result in a price spike.

Power

Night prices have been lower in 2016 and summer was generally quiet. Other than a heatwave in September resulting in air con load increasing and causing a price hike, 2016 has been a rather stable year.

An increased generation of renewables meant supply consistently met demand without much issue and so far, there has been no need for the National Grid to apply for extra load.

As for the future, we should not assume stability. The future of energy remains uncertain with new nuclear projects and unpredictable weather conditions suggesting a potential for price hikes with certain commodities.

Similar with the increased supply of renewables; since the supply of non-commodities is largely dependent on legislation and government policy, the impact on the prices may not be true of free-market forces and will instead be manipulated by subsidies and public investment.

In Summary

So far there has been no need for extra load this winter but no one is 100% sure what 2017 will bring as previous spikes have shown volatility, especially in Q1. The future of energy supply remains uncertain as new nuclear projects, such as Hinkley C, shale gas exploration and price rises continue to shake up the market.

While this year has remained broadly in line with expectations that is no signal of future stability. A nervous market, due to geo-political upheaval and climate change, makes any long-term predictions nigh on impossible with a record low supply margin leaving very little room for error.

To avoid future price hikes the best course of action for businesses would be to lock in current tariff costs with a fixed term contracts which can run from one to four years. For help finding the best deal for your business simple enter your postcode in the box at the top or call one of our friendly energy experts on 0800 9888375.


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