Supply fears to keep energy costs up

Oil supply anxiety is going to keep energy costs high for the foreseeable future with a strengthening euro the only possible cushion for the Irish consumer against higher petrol, diesel, home heating oil, and gas and electricity prices in the months ahead.

Brent oil prices have risen by almost 240% in euro terms since 2008 and the latest Bord Gáis Energy Index now stands at 151, an increase of 9% on Aug 2011, fuelled by the price of Brent crude oil increasing by more than 25% in euro terms since June and at over €90 a barrel.

Bord Gáis Energy power trader John Heffernan said the price of oil is now similar to the levels seen during the food and fuel crisis of 2008. He said “oil supply anxiety” and the potential for an improvement in the global economy will combine to keep prices high.

“The ongoing tensions in the Middle East and a tightening global oil market are dominating sentiment and have resulted in significant oil prices increases in recent months. The improvement in the euro in the month has only partially insulated Ireland from the worst effects of this increase,” he said.

“Given the recent announcement from the ECB to agree an unlimited bond-purchase programme the market’s assessment of European progress to deal with the debt crisis could dictate the future movement of oil prices in the months ahead,” he said.

“Other factors that could dominate sentiment include the ongoing geo-political tensions, including those between the West and Iran. In turn, oil prices, supply/demand dynamics, and currency movements will continue to influence forward gas prices as will increased demand for gas as we progress toward winter 2012/2013.”

Mr Heffernan said ongoing concerns about oil supply and increased optimism that central banks would act to stimulate growth and secure the euro combined to drive oil prices to record highs, resulting in a 4% increase in the Bord Gáis Energy Index for August.

“Small improvements in the strength of the euro versus the US dollar rate helped in part to suppress the increase in oil price rises which rose 7% in euro terms and over 9% in US dollar terms,” he said.

“Future gas prices for the coming winter rose by over 3% in August as a result of rising Brent crude oil prices. European gas prices for the coming winter and summer are closely linked to the international price of a barrel of oil.”

As a result, the Bord Gáis Energy Index now stands at 151, an increase of 9% on Aug 2011.