Business Energy Market Report

Overview

A rise in new COVID-19 cases in China spooked markets at the start of the week and saw the wholesale price of oil drop slightly with concerns over a slowdown in oil demand after several cities near Beijing reported being under new lockdown measures to stop the spread.

However, the losses were reversed by Tuesday as market participants remained optimistic that oil demand will continue to recover despite new lockdown measures around the globe. China also recently reported that is fourth-quarter GDP had grown by 6.5% year-over-year and the lockdown restrictions only apply to 30 million of its 1.4 billion population.

Storm Christoph continues to cause major weather disruptions across the country with both Greater Manchester and South Yorkshire declaring major incidents and an emergency COBRA meeting called. The prime minister addressed the Commons amid warnings the UK could see two months' worth of average rainfall in just two-and-a-half days as the storm moves across the country. The Met Office is also warning to potential power cuts, with gale-force winds likely to impact power infrastructure.

Despite the imposed lockdown restrictions this year and new outbreaks being reported globally, electricity contract prices have increased by over 37% compared to this time in 2020. Due to demand not being as heavily impacted, the vaccine rollouts and contract prices set to increase further in spring, unless the situation gets much worse prices are unlikely to be impacted to become cheaper.

Bullish Factors (upward pressure):

• Fall in US oil inventories.
• Colder weather and drop in wind generation, with weather warnings across most of the UK due to Storm Christoph.
• UK demand remaining high and traders are optimistic global demand will recover despite lockdown measures.

Bearish Factors (downward pressure):

• Rise in new Chinese COVID-19 infection rates.
• Increase in the value of the US dollar.
• Expectations of higher temperatures and wind generation at the start of the week.