Putin to the Rescue?

by | Oct 7, 2021

Putin to the Rescue?

Putin steps in as global oil prices jump to a new three year high at $83 a barrel.

Gas prices hit a new three-year peak on 5th October 2021, fuelling further worries for households and businesses alike. The surge in price is due to high demand as the world recovers and recoils post-pandemic.

Rising wholesale energy costs have already surpassed into a 12% rise in the energy price cap, this sharp increase in energy costs has already limited tariffs flexibility and affordability for 15 million UK homes.

The cap increased by 12% to £1,277 a year last week and is due to be updated again in April. Deals cheaper than the cap have now departed from the market and some suppliers are now marketing fixed-priced tariffs at as much as £2,000 a year. Leaving UK consumers paying more.

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Energy regulator Ofgem measures its cap on an observation period between October to March. This new cap in April 2022 will similarly be measured and influenced by energy prices between August and January. We can predict that the high prices that we are experiencing now will be reflected in this next cap.

Economists have warned, that if wholesale gas prices do not subside in the winter months households will be slammed with another sharp increase by as much as a third to their energy bills. This could spark energy bills to jolt from £420 to almost £1700 a year from April 2022.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, warned that “electricity and natural gas futures prices now point to around a 33 per cent increase in Ofgem’s default tariff price cap in April”, implying an increase of £421 to £1,698 a year.

We have only ever seen prices this high for day-ahead gas delivery sales during harsh winter conditions. Phil Hewitt director of EnAppSys added “The last time gas was at this level was for a few days in March 2018. This cost level is currently the price for the whole of winter. This is extreme pricing.”

Why is there such a surge?

A worldwide deficiency of gas has elevated costs globally as suppliers catch up with the demand post-pandemic. A struggle between supply and demand and a harsh cold winter across Europe have left stock levels unusually low. Furthermore, Europe is competing with Asia for liquified natural gas as Russian pipeline gas supplies have now been made scarce by outages and Gazprom ruling the domestic market.

Putin to the rescue?

Gas markets swung back sharply on Wednesday after Russia’s president Vladimir Putin said his country was prepared to stabilise the soaring global energy prices, lets see if he follows through.

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