Energy prices predictions for 2012

The oil price has rarely fallen below $100 a barrel since the Arab Spring threatened supplies at the start of 2011.

Libya is now nearly back at full-scale production post-war, which some suggest could increase global supply and theoretically lead to price falls.

But other analysts believe other Opec powers such as Saudi Arabia will reduce their output in order to ensure prices don't fall too low and may well remain above the $100 mark.

BP's chief executive Bob Dudley forecast that prices would be unlikely to fall below $90 a barrel in 2012, with a warning that too-high prices could affect economic growth.

The market in 2011 has been characterised by volatility and there's every chance of that continuing next year, with geopolitical scares risking sending prices sky-high.

Gary Hornby, energy market analyst at Inenco, said: “If something happens supply-side, especially with Iran, then obviously oil prices will go up. There is risk on that side and that’s what’s supporting prices at the moment."

Both gas and oil prices will also be affected by wider macroeconomic conditions.

Mr Hornby said: “Everything is more or less hinging on whether the eurozone gets out of the mess it’s in. The eurozone is tipped to go into recession at the start of next year and if that happens it will drag the wholesale prices down with it."

On gas prices, he added: "The consensus is because of the mild weather we are having as well, that will drag prices down as well. So the general consensus is we see prices going down at the start of 2012."

But despite gas prices being one of the main factors determining wholesale energy prices, there's no guarantee any reduction will be passed on to consumers.

Audrey Gallacher, Director of Energy at Consumer Focus said: “It is extremely difficult to predict what will happen to energy wholesale prices in the future. However, if they fall next year, we would expect the Big Six to ensure these reductions are reflected in consumers’ bills.

"Our contention is that Big Six doesn’t have a great track record of passing on wholesale decreases as quickly as increases. There are still huge consumer concerns over whether pricing is fair, and the energy industry needs to be much more transparent about how changes in wholesale costs are passed onto customers."

Ofgem, the energy regulator, will place further pressure on the energy companies to pass any savings on; from the New Year it will increse the frequency of its reports on the relationship between retail and wholesale prices from every three or four months, to every week.

 (Source: Telegraph)
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