As the world grapples with the fallout of the coronavirus, the biggest oil producers in the world could be about to slash output. So, what are the factors that will continue to impact UK business energy prices in 2020?
#1 Oil price crash
China is the world’s largest energy consumer. It’s also where Covid-19 was first identified. As a result of the coronavirus outbreak, the oil price has crashed in a short space of time due to decreased demand.
As more governments orde lockdowns to curb the spread of the global coronavirus pandemic, oil prices continue to fall (having already fallen for four weeks straight and having lost about 60% since the start of the year).
Currently, the market is contending with the demand destruction caused by the coronavirus pandemic along with and the unexpected oil price war that erupted between oil producers Russia and Saudi Arabia earlier this month.
#2 Decreased demand
The oil price wars started with the decrease in supply and demand within China as the virus spread. Now, demand around the world is following suit as governments advise people to reduce social contact and ban international travel.
#3 Infections on oil rigs
To protect employees on oil and gas rigs from coronavirus infection, companies are establishing procedures to handle Covid-19 cases in their operations, such as reducing manpower on non-critical tasks and asking downstream staff to work from home.
#4 Travel and logistics restrictions
Oil and gas companies (as well as governments) are enforcing travel restrictions and suspending travel for employees. In addition, countries are also closing ports of entry and turning away or delaying gas tankers.
The travel restrictions have also significantly reduced the demand for jet fuel.
#5 A force majeure situation
Although all oil and gas sellers and buyers will have contracts in place, there’s a special cause called force majeure. This takes into account events and situations which are out of the influence of participants of the parties of the contracts, such as the outbreak of the coronavirus. This is leading to some postponements and delays in contracts.
What about energy supply?
Energy regulator Ofgem is working closely with government to ensure the energy industry is taking all the necessary steps to serve the needs of customers.
Ofgem assures that your energy supply won’t be disrupted. Network companies and energy suppliers are expected to monitor and follow government guidance closely and have plans in place to continue to provide energy.
If you have questions about your own energy situation, get in touch with your Smarter Business account manager.
Find more advice on the Citizens Advice website.