Energy price falls ‘not benefiting’ consumers

Consumers are failing to reap the full benefits of falling global energy prices because of the weakness of the euro against the US dollar and sterling, the latest Bord Gáis Energy Index finds.

The Bord Gáis Energy Index now stands at 142, 1% higher than in May 2011 but down 7% on April.

“A 9% fall in the Brent crude oil price pushed the Bord Gáis Energy Index down 7% for May. Wholesale gas and Irish electricity prices also fell during the month. Fuel commodity prices dropped as the markets nervously assessed the uncertain global economic and political repercussions of the current crisis in the European Union. As a consequence, money managers channelled funds away from commodities in favour of safe haven assets such as US and German government bonds,” according to the Index.

Power trader at Bord Gáis Energy, John Heffernan, said if the euro had not weakened 7% versus the US Dollar and 2% versus the British Pound in May, the Bord Gáis Energy Index would have fallen a further 4% month-on-month to 11%.

“The weaknesses of the euro means that Irish consumers therefore did not benefit fully from the falls in internationally traded fuel commodity prices seen in May,” he said.

Mr Heffernan said oil, in US dollar terms, fell 15% in May, the largest monthly price fall in two years.

“This was as a result of the markets suffering major stress under the political and economic uncertainties in Europe, mounting speculation that growth in the US could slow, and further evidence of the evolving Chinese slowdown. These stresses eroded market estimates of future oil demand and prices subsequently fell.

“Although talks between Iran and the UN in Baghdad in May failed to make any progress, tensions over the disputed Iranian nuclear programme did ease and this put additional downward pressure on Brent crude oil prices. However, a UN report reminded the world the issue has not gone away, given that Iran is reportedly still actively enriching uranium and engaged with its nuclear programme,” he said.

Mr Heffernan said another factor weighing on prices is the quantity of oil being produced by OPEC countries. With oil production from OPEC countries at elevated levels not seen since October 2008; demand destruction in Europe and the US and muted oil demand growth in China, it is now estimated the oil market is oversupplied by around 500,000 barrels a day.

However, Mr Heffernan said there are a number of uncertainties. The spate of unplanned stoppages currently afflicting non-OPEC supply remains a minor concern as are the recent events in Argentina where the government expropriated a Spanish oil and gas company’s assets.

He also cited the Japanese nuclear moratorium and the summer crude burn in exporting countries as more layers of uncertainty.