Energy prices – Conflicting facts and figures
June 16, 2009
There has been a lot of coverage in the media lately, including good informed opinion and information in places like the Sunday Times and Financial Times, about energy, the market, the supplies and the prices that go with it. As we all know the price of mains energy, as well as road fuel, LPG and heating oil is driven by the price of a barrel of crude oil. Today the price is a little over $71 a barrel.
A few days ago the head of OPEC was forecasting the price will rise to £80 – $85 by the end of the year. Some of the “BIG” guys in the market were forecasting $75 – $80 by the end of the summer. Looks like concurrence here. What I don’t understand is that world demand is at a very low level, with the rate of decrease reaching the levels of 1981, surely the laws of economics – “Supply & Demand” should mean that we have falling or at least stable prices. OK we know that OPEC and the other oil producing countries have built their financial budgets on around the $80 – $85 mark and will therefore choke back the production to protect prices, but considering the February price was $35 we seem to be in very uncertain times. When, and it will be when, the world comes out of this economic recession and demand rises again, should we be planning for $100, $200 or even $250 a barrel? If so, will that prompt severe inflation, and then lead to another recession, before we have even had time to draw breath and reap a couple of rewards from an upturn?
This confusing picture makes answering the question I am consistently asked by clients and others – What is going to happen to energy prices? I always respond with the fact that this is a matter of crystal ball gazing, and I talk them through what I have observed in the various market reports etc, and say that a personal opinion is that prices will only “Go North” unfortunately.
If we now put the political uncertainties in The Middle East into the crystal ball, it looks even worse, and perhaps we should expect a spike to come along, particularly if the Iranian election results lead to general unrest.
Let’s hope for better and more stable times ahead!