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Oil prices fell slightly in September on the back of efforts by global powers to
address the recent record highs in oil prices. This resulted in a 1% decrease in
the Bord Gáis Irish Energy Index for September although the Index rose 12% in the
As a result, the Bord Gáis Energy Index now stands at 150, an increase of 11% on
September 2011 following a year of rallying oil prices. Despite this month’s
slight fall in the price of Brent crude oil, the price has rallied $23 or 26%
since June and remains at historic highs.
Commenting on the Bord Gáis Energy Index for September, John Heffernan, power
trader at Bord Gáis Energy, said:
“A combination of factors led to a slight drop in oil prices in September.
Firstly, rumours of a drawdown of US emergency oil stockpiles helped ease oil
supply anxieties. Secondly, a rare statement from the G7 finance ministers
calling on oil producing countries to increase their output in order to ease the
ongoing pressure on oil prices appears to have been somewhat successful. In
response, OPEC members signalled that a price of $100 for a barrel of oil was
acceptable and that markets were well supplied to meet any extra oil demand.
This reassurance appears to have had a calming effect on the markets and led to
the slight reduction in oil prices.
Furthermore, lower oil prices will significantly help support fragile global
economic growth. In September Central Banks in the US and Europe announced their
intention to buy bonds and this is seen as an additional and complimentary
policy move to stabilise and stimulate the economic situation.
However, despite these co-ordinated efforts, the price of oil continues to be
under pressure due to various geopolitical developments, particularly in
relation to the Middle East and the ongoing concerns about Iran’s nuclear
programme. Additionally, a potential maritime dispute between China and Japan in
the East China Sea and the collapse of the Iranian rial and shelling of a
Turkish town by the Syrian government makes the outlook for oil prices very
Anxieties over oil supplies have plagued the market all year but eased in
September. Production is expected to increase in the short term from the North
Sea and the Gulf of Mexico and the medium term from South Sudan, United Arab
Emirates (UAE), Iraq and Libya. This led to the International Energy Agency
describing the market as “reasonably well supplied” contributing to an
improvement in market sentiment in the month.
future wholesale gas prices in the UK have a strong relationship with the price
of oil, geopolitical developments over the coming months are as important to the
UK and European gas markets as global oil markets. As we approach winter,
weather and gas supplies to the UK will also heavily influence gas prices.”
The following are the key trends recorded for the month of September:
oil element of the index was down 4%. Speculation that a drawdown of emergency
oil stockpiles was imminent helped put downward pressure on prices. Other
factors weighing on the market included a fall in Chinese oil demand, improved
North Sea oil production, a strike aversion in the North Sea, the resumption of
oil exports from South Sudan, and the resumption of oil production in the Gulf
of Mexico after Hurricane Isaac.
Natural Gas: The
natural gas element of the index was up 11%. Despite UK gas demand being
significantly below seasonal norms (due to mild weather and significantly
reduced demand from gas-fired generation) in euro terms the average UK Day-ahead
gas price for September was 11% higher than in August. Despite the low demand
for gas in the UK, the Day-ahead price escalated due to reduced gas supplies
from Norway and market concerns over the availability of future supplies of
Liquefied Natural Gas (LNG) cargoes from the Middle East due to maintenance
outages in Qatar.
coal element of the index was down 7%. After strikes in Colombia and Hurricane
Isaac in the US, the global coal supply chain resumed in September and provided
abundant supplies to the European market. Despite strong market signals to burn
coal in Europe to generate electricity, constant supplies of coal ensured that
stock piles were topped up and pressure remained on prices. A weakened US
Dollar versus the euro, weakening oil prices and softer German wholesale
electricity prices also weighed on coal.
Over the last 12 months, the growth in coal supplies from all major exports
coupled with weak global economic growth has depressed prices by 24% in euro
terms. This export growth has been lead by the US, with exports increasing 58%
in the first half of 2012, due to the energy surplus it has built up with the
rise of shale gas extraction.
electricity element of the Index was up 5%. UK Day-ahead and Within-day
wholesale gas prices are the dominate factor determining Irish wholesale
electricity prices as the majority of the electricity produced in Ireland is
generated by burning imported gas from the UK. Therefore the 11% rise in the
monthly average UK Day-ahead price in September compared to August contributed
toward higher wholesale electricity prices in Ireland. Despite historically low
gas demand in the UK, supply struggled to keep up in September due to
maintenance outages at gas producers in Norway and Qatar.
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