Optimised Energy’s David Schofield examines the current state of the energy market and considers what your business needs to do to benefit.
You don’t have to look too deeply to discover that energy markets remain in turmoil. Early in lockdown we reported that UK gas and power markets hit 3-year lows. The value of a barrel of Brent crude halved. Demand from China had withered. And this all served to compound the effect of the ongoing price war between Saudi Arabia and Russia.
As the pandemic continues, prices have begun to rally again. With OPEC+ agreeing to cut production levels and demand increasing as nations begin to ease lockdown measures, price resistance levels are being tested. Almost inevitably things will recover, but even the most bullishly optimistic see that as a slow process.
That’s the macro picture. But how does it affect you? And if you want to take advantage of low energy prices as they begin to edge up again, how do you do it? Here are some key steps:
1. Understand how energy prices affect the procurement arrangements you have right now
Fixed contracts: Fixed contracts can work well when prices are rising – protecting you from general inflation and the sort of market shocks that can see prices spike. They are less effective when prices drop as you won’t be able to benefit from the lower prices.
Flexible purchasing: It’s far better news for organisations using a flexible methodology. This will enable you to trade in accordance with the market to benefit from current levels and future market developments.
2. Explore how you can take advantage of these low prices
Consider a contract renewal which will free you from a disadvantageous arrangement and enable you to capitalise on low commodity prices.
Consider alternative purchasing methods (i.e. flexible purchasing) so you can purchase against the market on a suitable risk-managed strategy.
3. Understand the risks of buying energy when prices are low – and mitigate them
If you can fix the energy price now, then you lock in low levels for the contract period and insure yourself against price rises. However, it is important to consider the contango market characteristics currently present and mitigate increased risk premia on longer-term contracts.
A flexible purchasing methodology, on the other hand, will enable you to capitalise on market volatility, mitigating near-term risk, whilst providing early opportunity for securing competitive rates for later contractual periods. Flexible purchasing can incur risk, however, can be financial beneficial providing you build in an effective risk management strategy that limits your exposure to a rising market.
Arrange energy procurement with Optimised Energy and we’ll always ensure that a strategy is in place to mitigate risk whilst enabling you to benefit in the here and now.
4. Act now
If you haven’t been focused on your energy procurement so far during the pandemic (and it’s not as if organisations haven’t had plenty more on their plates to consider) you might think that moving now would be too little too late.
It isn’t too late, markets are beginning to recover, but a proactive approach can limit the risk of incurring energy price rises. Opting for a suitable purchasing method can even provide further opportunity to benefit from market uncertainty and volatility. As we saw at the outset of this piece, whilst prices are expected to rise, they are not expected to do so quickly.
That presents a window of opportunity, but clearly that won’t last forever. And if global recovery does adopt a more optimistic V-shape, it may not last for long. So if you want to benefit at the optimal moment, now’s the time.
Talk to us, and the process will look like this:
We will explore your current procurement method, examine the current market conditions and discuss your preferences, including your attitude to risk and market volatility.
We’ll recommend the most appropriate purchasing method to suit your requirements.
On your instruction, we’ll carry out the relevant tender at the most appropriate time to minimise costs.
5. Talk to us
In any market, buying at the bottom is the key to success. For energy, that moment is now. To explore ways that your organisation can benefit from low energy prices, talk to Chris Gore firstname.lastname@example.org.