Irish Economy 2013:
The Bord Gáis Energy Index rose 4% in August as oil supply concerns increased
Brent crude oil prices. These concerns arose as a result of falling oil
production in Libya and Iraq but were heightened by events in Syria and the
potential of a military intervention. Although Syria is not an oil supplier,
traders anticipated that the civil war could escalate into a regional conflict
that could disrupt oil supplies. This pushed the Brent Crude oil price to a six
Natural gas prices for the month increased by 2% due to a series of planned
maintenance outages in the UK. The depreciation of the euro versus sterling also
led to an increase in prices for Eurozone buyers of UK gas.
As a result the Energy Index now stands at 147, a 7% increase compared to May of
John Heffernan, power
trader at Bord Gáis Energy said: “Oil markets were bullish in August with the increasing likelihood of an
international military intervention in the conflict in Syria. Syria has not been
an oil supplier since 2011 but the market fear that the situation could evolve
into a regional conflict involving some of the world's major oil producers
influenced oil prices. The price spike experienced has been supported by
significant supply shortfalls in both Libya and Iraq and the ongoing potential
threat to oil supplies through Egypt. Although Saudi Arabia has increased
production, this has come at the expense of the world’s spare capacity. Recent
history has shown that oil prices can spike when this cushion becomes too thin.
As markets digest and adjust to actual supply disruptions, particularly from
Libya, they will react significantly if OPEC supplies are reduced further.”
Oil (+6%): Month-on-month the front month Brent crude price rose 6% in euro terms as events
in Syria and Egypt threatened global oil supplies. At the same time, falling
production in Libya and Iraq has meant that the world oil market has tightened.
At one point the Brent crude price surged to a six-month high when it traded at
over US$117 a barrel.
This upward price momentum was supported by a series of better than expected
economic releases during the month, as Western economies show tentative signs of
recovery. This in turn added to the upward momentum in oil prices.
Beyond supply disruptions, Bord Gáis said there is a growing expectation that the US Federal
Bank will start to cut back on quantitative easing in the months ahead. This has
the potential to add further pressure to emerging economies that have slowed
dramatically this year. As emerging economies have been responsible for the
growth in oil demand, stuttering growth coupled with growing non-OPEC oil
supplies could, in the absence of supply disruptions, push oil prices lower.
Natural Gas (+2%):
The average Day-ahead gas price for August was 2% higher month-on-month. A
weaker euro versus the British Pound meant that the slight month-on-month fall
in the average Day-ahead gas price was not replicated in euro terms. However, at
64.72p a therm, the average Day-ahead gas price for August 2013 is high when
compared to previous years.
With many planned maintenance outages expected in August,
Bord Gáis said traders were anxious
that reduced gas supplies during the month could push prices higher if the
market struggled to meet demand. However, these fears failed to materialise, but
a relatively well supplied gas market over the month was not enough to apply any
substantial downward pressure on prices.
The winter 13/14 gas price softened during August as total UK gas storage levels
reached close to 90%. Rising stock levels in the UK but also in Germany and
France helped to alleviate traders’ concern about gas supplies ahead of winter.
However, Asian LNG demand is expected to remain strong as Japan struggles with
the ongoing closure of its nuclear plants and South Korea deals with the loss of
six of its nuclear reactors.
Coal (no change): In euro terms, coal was unchanged month-on-month as the European market appears
to have grappled with an abundance of coal. This has eliminated any upward price
effect of a miners' strike in Colombia.
Electricity (+1%): Modest upward pressure on the wholesale electricity price in August occurred
throughout the month. As the wholesale electricity price is highly correlated to
the Day-ahead price of wholesale gas in the UK, the 2% rise recorded in August
applied some upward pressure. Maintenance and outages also contributed to higher
wholesale prices as more expensive producers of electricity were called upon to
replace lost volume.
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