Wholesale cost of energy drops to new lowLast updated on 11/05/2016
The firmus Energy Index touched a new low in July as world markets continue to be swamped by a surplus of oil. The Index, which tracks wholesale fuel prices in Northern Ireland, dropped to 74. That’s the lowest figure recorded since the benchmark was launched over five years ago.
Brent crude ended July at just over 52 dollars a barrel following a 17 per cent price drop bringing the cost of oil back to where it was in January.
Paul Stanfield of firmus energy, said: “The main reasons why the recent recovery in prices stalled are clear. It appears that Saudi Arabia’s determination to maintain market share, while shale oil continues to flow in the United States, leaves markets awash with crude. Low prices may in time deter the US oil producers, but for the moment there are few reasons to expect an early reversal in prices.”
Gas costs marked time over the month despite higher than expected demand in the UK. Forward prices for next winter and the following summer continued to soften, in part because of lower oil costs.
The wholesale price of power also flatlined in July, staying around 4.7 pence a kWh. Once again the gross profit or clean spark secured by gas fired power stations stayed low. Such limited returns are unlikely to encourage the building of a new thermal plant, which, it is argued, is needed as a backstop on a grid dealing with greater volumes of volatile wind power.
The price of coal continued to subside in July and, at 58 dollars a tonne, it hasn’t been this low in over seven years. It’s not just energy costs however that have been weakening. Commodities in general last month experienced their biggest monthly decline in almost four years. The context is the same – too much supply and not enough demand. It’s far from clear when the narrative will change.