Wholesale gas prices plummet 7% despite Red Sea conflict

Fall in wholesale gas and oil prices raises hopes of further cuts in energy bills for Irish households and businesses

Mon, 15 Jan, 2024 - 16:58

Eamon Quinn

The price of European wholesale gas for the rest of the winter plummeted yesterday, and global crude prices eased, despite concerns about the disruption of energy supplies through the Red Sea and the Suez Canal.

The fall in wholesale energy costs come as storage levels of gas remain close to record levels in Europe, helping ease market fears about disruption of some liquefied natural gas, or LNG, shipments from the Red Sea.

The price of wholesale gas for delivery in March fell as much as 7% in the trading session to below €30 per megawatt hour, while the price of gas through the rest of the winter and spring months was trading even lower, at €29.70, futures markets show.

Meanwhile, the price of Brent crude oil eased to $77.40 a barrel, as traders bet that the Red Sea crisis will not escalate into an even wider conflict.

The fall in wholesale gas and oil prices raises hopes of further cuts in energy bills for Irish households and businesses should the energy suppliers pass on in full the fall in wholesale market prices.

The energy price cuts could also bolster the case for the European Central Bank to cut interest rates at an early stage, although the central bankers have in the past focused on core inflation that excludes energy costs from its inflation calculations.

Red Sea attacks

Iranian-backed Houthi militants in Yemen have stepped up attacks on vessels in the Red Sea, impacting a shipping route vital to East-West trade. In response, some shipping companies have instructed vessels to instead sail around southern Africa, a slower and therefore more expensive route.

The US and Britain launched dozens of air strikes against Houthi military targets overnight on January 11 and 12 in retaliation for the attacks, widening regional conflict stemming from Israel’s war in Gaza.

For oil, the prospect of rising supply from non-Opec countries and slowing demand growth are helping to keep prices rangebound.

“It is not our base case that US-UK strikes on Houthi targets in Yemen and issues in the Red Sea will lead to a substantive upside in oil prices over the coming weeks,” said Citigroup analysts in a research note.

“On the other hand, a possible escalation in tensions between Israel and Hezbollah and/or Iran, which the market believes may result in supply disruption, or actually results in supply disruption, is a larger concern in the near-term, though also not within our base case.”