6th May 2020.
Only this week the US Treasury has confirmed it’s borrowing a record $2.999 trillion (£2.41trn) in the quarter, more than five times the previous record set during the 2008 financial crisis.
So, we know that we are living through a profound period of economic uncertainty and that forward planning is incredibly difficult, both in terms of managing the immediate impact but also in attempting to make the right judgement call on how best to protect your organisation in the medium term. From the perspective of managing energy procurement and trading in these turbulent times; what are the factors that you need to consider?
You only need to look back at the trend to 2012 to see that forward prices are at historic lows. Just a cursory understanding of supply demand curves illustrates that with collapsing demand and remaining over-supply, the price quickly falls. This is most easily and visibly seen by the price of oil – falling from $70 at the turn of the year to $20 now. With COVID-19 not even in the public consciousness only 4 months ago and the world’s leading finance ministries rushing to formulate rescue passages; it was impossible to have forecast recent market fluctuations. However, it is possible to formulate effective plans to take advantage, where you can.
None of us have perfect 20:20 vision of what lies ahead but we can say that prices will not stay at these levels indefinitely. As demand picks up, the supply surplus will reduce, and prices will start to increase. The client forecasts we are seeing for May and June are indicating that consumption will shortly start to pick up. But prices remain in a down-trend and might even move lower, particularly if the recently agreed reduction in oil production levels come under political pressure and start to unravel.
We certainly expect to see increased volatility going forward and this may present opportunities to further improve prices. Our 50 years of experience would lead us to recommend contracting now but adopting a capped procurement strategy that will not only provide current market prices but may also allow you to benefit from better ones. Please contact us at Inenco if you need some more advice.
Any sailor will tell you that an experienced pilot can be a huge help in navigating a passage into safe harbour through choppy waters.