Why are Energy Prices not falling?

mda99das

I have been tracking the price of Crude Oil and Natural gas. (most trading apps give demo accounts so you can drill into the numbers) But energy is in a DOWNTREND. China is the largest buyer of oil, and with slow down in growth demand will fall. Oil well probably head to 55-60 USD / barrel. 
My question is and I really want someone like Martin Lewis to come onboard, as he probably knows more about this than anyone, why are consumers being ripped off and prices not falling. It just seems that energy companies are not passing on the wholesale cost reduction. On the same front, when oil futures went negative, why where we not paid to use energy? 

michaels

Petrol prices we are being ripped off as retailer margins are up hugely. My thought is this is driven by the takeover of Asda by venture capitalists fronted by petrol retail brothers, Asda used to set prices for them whole market to draw in customers but don't any more. Now only Costco and a few independents price based on cost but other retailers don't follow their lead and are often 20p per litre over priced compared to their local Costco.

Gas is more complicated as the govt forces companies to buy 6 months (now 3) in advance so high prices have been locked in. In fact prices were much higher than the current subsidised cap.

What I am not sure of is what current 3 month ahead prices of about 200 mean for the cap come April. The govt have 'capped the cap' at about 20% above the current cap but I don't know if this will still cut in. Two companies used to publish estimates for future cap prices based on the buy ahead prices but I have not seen any recent updates. Does anyone have any recent estimates?

Qyburn

Mains gas and electricity are subsidised at the moment, so you can't expect cost savings to be passed on until the costs mean no subsidy is needed. Round hear petrol and Diesel prices are dropping but heating oil has increased. I'm told that's because local suppliers' stocks are low following the unusually early cold spell.

MattMattMattUK

mda99das said:

I have been tracking the price of Crude Oil and Natural gas. (most trading apps give demo accounts so you can drill into the numbers) But energy is in a DOWNTREND. China is the largest buyer of oil, and with slow down in growth demand will fall. 

The price has not really dropped much, neither has demand. Spot prices can fluctuate but the vast amount of energy in bought on long term contracts not spot prices. It is likely that energy prices will drop in the long term, but not as quickly as you seem to think they should. Petrol and diesel prices for example have already dropped reflective of markets, but gas and crude has not dropped significantly on long term contracts yet.

In the UK gas and electricity are currently subsidised so the cost to the user is already below cost, if the price overall dropped by 10% that would still be higher than we are currently paying so the government subsidy would decrease but the consumer would still pay the same.

mda99das said:

Oil well probably head to 55-60 USD / barrel. 

Unlikely considering the restrictions imposed on Russia and OPEC+ limiting production with their aim to be to hold it around $80-85 per barrel. Even if it did drop though that would be reflected in the cost once it had dropped, not a year before it did drop.

mda99das said:

My question is and I really want someone like Martin Lewis to come onboard, as he probably knows more about this than anyone, 

Come on board with what? He is a consumer champion, not an expert in international hydrocarbon markets.

mda99das said:

why are consumers being ripped off and prices not falling. 

Consumers are not being ripped off and prices are not falling because the underlying costs are still high.

mda99das said:

It just seems that energy companies are not passing on the wholesale cost reduction. 

You are misinterpreting the wholesale marker data and not understanding the supply chain. Prices have come down a little where it reflects the market, but they will not move based on the day traded spot price.

mda99das said:

On the same front, when oil futures went negative, why where we not paid to use energy? 

The oil prices that went negative were oil being sold in Texas where production was exceeding storage capacity due to a fall in demand, they needed to get rid of the oil because otherwise they would have had to stop production which causes major problems. During the lockdowns due to reduced demand the prices fell dramatically in the first few months, petrol in the UK went down to the mid seventy pence per litre in some parts of the country, nearly all fell into the eighties. You also have to remember that the cost of crude is only one component of the price of oil derived products, transport costs, refining and staff costs also add to the price. The same applies to gas, there are different supply contracts, differences in cost between LNG and pipeline gas etc. The market is a lot more complicated than the day trade spot price.

michaels

Thanks Mattx3. Do you know what the current approx 200p 3 month ahead gas prices would mean for the April cap (excluding the gov cap of the cap)?

MattMattMattUK

The link to the Cornwall Insights calculations based on current market prices are below. How that would factor in based on a specific three month price per therm I do not know as they take account of a full range of factors to calculate their estimate. 200p per therm would still be more than three times the average of the previous five years so even if longer term prices settle at they level it would leave prices far higher than historic levels.

https://www.cornwall-insight.com/press/cornwall-insight-responds-to-the-announcement-of-the-january-price-cap/

wild666

mda99das said:

I have been tracking the price of Crude Oil and Natural gas. (most trading apps give demo accounts so you can drill into the numbers) But energy is in a DOWNTREND. China is the largest buyer of oil, and with slow down in growth demand will fall. Oil well probably head to 55-60 USD / barrel. 
My question is and I really want someone like Martin Lewis to come onboard, as he probably knows more about this than anyone, why are consumers being ripped off and prices not falling. It just seems that energy companies are not passing on the wholesale cost reduction. On the same front, when oil futures went negative, why where we not paid to use energy? 

The suppliers have to use the stuff, energy oil and so on, at the price they have paid a higher price for. If they buy some at a lower price and the prices then go up again they won't reduce their prices. 

wild666

Qyburn said:

Mains gas and electricity are subsidised at the moment, so you can't expect cost savings to be passed on until the costs mean no subsidy is needed. Round hear petrol and Diesel prices are dropping but heating oil has increased. I'm told that's because local suppliers' stocks are low following the unusually early cold spell.

Over the road from me, Morrisons, the price of diesel is around 21p per litre dearer than petrol 

michaels

MattMattMattUK said:

The link to the Cornwall Insights calculations based on current market prices are below. How that would factor in based on a specific three month price per therm I do not know as they take account of a full range of factors to calculate their estimate. 200p per therm would still be more than three times the average of the previous five years so even if longer term prices settle at they level it would leave prices far higher than historic levels.

https://www.cornwall-insight.com/press/cornwall-insight-responds-to-the-announcement-of-the-january-price-cap/

That was published late November.  Since when the 3 month ahead prices have generally fallen (by about 1 third?)  Could this mean that current estimates might also be about 30% lower than those ones?  Obviously probably still at / above the revised EPG but closer.

Are there any data published on usage - I was wondering if the stories of consumers cutting back are reflected in a reduction in overall demand and if so how much - obviously we would need to compare based on an adjustment for temperature.  For example this December looks like ending up about 3 degrees cooler than December 21.

ariarnia

mda99das said:

I have been tracking the price of Crude Oil and Natural gas. (most trading apps give demo accounts so you can drill into the numbers) But energy is in a DOWNTREND. China is the largest buyer of oil, and with slow down in growth demand will fall. Oil well probably head to 55-60 USD / barrel. 
My question is and I really want someone like Martin Lewis to come onboard, as he probably knows more about this than anyone, why are consumers being ripped off and prices not falling. It just seems that energy companies are not passing on the wholesale cost reduction. On the same front, when oil futures went negative, why where we not paid to use energy? 

maybe using your app you can answer the question for yourself. 

what is the price of buying oil today for delivery today? 
what is the price of buying oil today for delivery in 12 months? 
what would ave been been the price buying oil in dec 2019 for delivery in december 2020?

once you answer those questions you should understand why the price is not back down where it was early last year. 

Miser1964

Have a look at Youtuber 'Joe Bloggs' for his (near) daily updates on the impact of Ukraine war on energy prices, what difference the sanctions will make and the global recession in 2023.