Following the impacts of Covid-19 on global demand and oil price disputes between Russia and Saudi Arabia, Brent crude oil prices fell to a 17-year low of below $26/bl on 18 March 2020, according to Cornwall Insight.
The recent crash saw prices record the most significant daily loss since the end of the Gulf war in 1991. Analysis from Cornwall Insight shows how this oil price crash has impacted power and gas prices in 2020 so far.
The rapid rate of decline of oil prices has had a definite influence on the season ahead gas and power contracts. The above chart highlights this, showing prices for GB gas and power in freefall since the turn of the year.
James Brabben, wholesale manager at Cornwall Insight, said, “So far in 2020, Brent crude oil prices have fallen more than 60% since peaking at $69.75/bl in January, hitting a 17-year low of $26.33/bl on 19 March. Gas and power contracts have thus far followed the trend, falling 32.7% and 21.1% respectively.
“There is a continual correlation between GB gas and power contracts with Brent crude oil, although it had been assumed that as the UK gas mix has become less dependent on European gas and the links to oil this correlation was now weaker. However, 2020 so far shows this is not necessarily the case.
“This is partly due to the resurgence of LNG imports into the UK over the past couple of years. While the European and Norwegian share of the gas mix has declined, LNG has increased to average roughly a third of all gas in the UK.
“This trend for LNG has maintained a similar share of oil-linked gas contracts impacting upon the National Balancing Point (NBP) gas market price. With gas still the marginal fuel in the power market, the correlation of oil to gas, therefore, continues to feed into the power sector.
“As the impact of Covid-19 on the energy markets shifts daily, the trends in global oil markets will likely continue to impact GB energy markets both on the producer and consumer side of the market.”