Is now the best time to buy energy contracts?

The price of oil has hit its highest level since November 2014, reaching $80 per barrel last week, as geopolitical fears cause concerns to rise over potential disruption to global supplies.

Time to buy?

A diverse range of factors have contributed to this reduction in availability, including the United States deciding to unilaterally exit the nuclear deal with Iran; seventeen months of output cuts by major oil-producing countries, led by Saudi Arabia and Russia; and the ongoing political and economic crises affecting Venezuela, which have resulted in its crude production going into free fall.

In addition, the International Monetary Fund (IMF) have forecast global growth of 3.9% for 2018 and this healthy economic activity has been an important pull factor in the oil price rises seen so far.

The IMF have also recently revised down global oil demand growth slightly from 1.5mb/d to 1.4mb/d, to reflect the impact of higher oil prices. Another counterbalance to bullish prices is US shale oil production, which has boomed off the back of stronger oil prices. However, while US production is at record levels, analysts don’t believe that shale is able to solve the short-term oil supply problems.

While forecasting the absolute future price at any given time is difficult, we believe that the short to medium trend will be for oil prices to continue to rise; Total and Merrill Lynch are both predicting that oil will break the $100 per barrel mark in the run up to 2019.

What now?

As the price of oil is closely linked to the price of energy, our advice is to consider securing contracts as soon as possible during the remainder of 2018 to limit the impact of the expected increases.

Linked to this, we also recommend that UK PLC should start to pick up on opportunities to reduce overall consumption of energy, particularly those that may have been deemed to offer a limited payback in the past due to lower energy prices.


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