Energy index stable on low risk

The Bord Gáis Energy Index is unchanged in February compared with the previous month, as the global economic recovery stalls and the risk premium on energy prices falls because of lower geo-political concerns.

The index stands at 150 — a 4% decrease on Feb 2012. The uncertain outcome of the Italian elections adds to the eurozone’s economic woes.

Moreover, the index was buoyed last year by fears that Iran would close the Strait of Hormuz, which would have had a hugely disruptive impact on oil supplies.

The index tracks movements in oil, gas, coal, and electricity prices.

Generally increased economic activity and/or threats to energy supplies sees an increase in the index.

Commenting on the index for February, John Heffernan, power trader at Bord Gáis Energy, said: “Since November, investor mood has been bullish and equities have rallied to all-time highs.

“As financial investors now exert a considerable influence on oil prices, Brent crude oil has been caught up in the tide of optimism and rose from $110 [€84] in November to $118 by mid-February. Shifting market sentiment was demonstrated by the reaction to contrasting economic news from China.

“Early in the month, oil prices reached a yearly high as China released trade data, suggesting that oil demand for 2013 would be stronger.

“However, by the end of the month, concerns about the Chinese economy and China’s manufacturing sector revealed that it was operating barely above contraction levels and prices fell.

“Demand for gas is expected to increase over the coming months as the UK plans to close a number of coal plants. Coal prices have risen over recent weeks as a general strike in Columbia choked supplies coming from that country. It is one of the biggest coal exporters in the world.

“Electricity prices in this country are down even though input costs have risen. The fall in prices stems from efficiency gains in electricity generating plants. Moreover, the increase in US domestic production is constraining oil prices.

“A key factor that could impact oil prices in the months ahead is the growing shale oil revolution in the US. Evidence of its evolution appeared during the month as US oil output hit a 20 year high and its net petroleum imports fell for the first time in over 20 years.

“Domestic US oil output is now 22% higher than a year ago. With the US relying less on imports, particularly from Nigeria, prices are easing in the global oil market.”