Bord Gáis Energy Index reacts to commodity market volatility

7 Nov 2011

The BGEI for October 2011 was 21pc higher than it was in October 2010

The continued volatility in the commodity markets was reflected in a 1pc increase in the Bord Gáis Energy Index (BGEI) for October. While the index recorded a 3pc increase in the price of oil for the month, the gains in oil prices were offset by falls in both coal and electricity prices, said the company this morning.

The lingering threat of a second global recession was the major influence on the movements in October’s index, said Bord Gáis earlier this morning. The index, which now stands at 136, is 21pc higher than it was in October 2010.

“Commodity markets continue to be volatile as Europe struggles to get to grips with debt levels and the threat that it could spark a second global recession. Oil prices remain susceptible to the outlook for the global economy and we have seen oil prices rise from lows of US$99 per barrel at the beginning of the month, to trade at US$115 by the middle of the month, and fall back to US$109 by month end,” said Michael Kelleher, energy trading analyst at Bord Gáis Energy, today.

Kelleher said the market anticipates oil prices will fall further in 2012 from the current levels. If the current euro crisis is not “comprehensively resolved” he said there’s a growing possibility that economic growth could “falter” in 2012.

“Lower economic growth would mean that demand for oil in 2012 will be lower than it currently is and futures prices are lowering as a result. Gas prices remain higher over the coming winter months due to the seasonal nature of the market and the high oil prices earlier in the year used in the calculation of gas prices on the continent,” explained Kelleher.

Bord Gais Energy Index

October 2011: key trends from BGEI

Oil: The oil element of the Index was up 3pc to 144. Oil prices increased from lows of US$99 per barrel at the beginning of October to trade US$115 by the middle of the month following the agreement of a rescue package for Greece and the slight upturn in the markets. However, oil prices slipped at month’s end as concerns about the outlook for the eurozone heightened and brent crude oil closed the month at US$109.

Natural gas: There was no change in the natural gas element of the index and it remained at 180. The new gas year started with unusually warm weather in Europe resulting in lower demand. Prices increased gradually throughout the second week of October as demand from continental Europe increased and erratic Norwegian flows created uncertainty in the market.

Coal: The coal element of the index was down 7pc to 145. European coal prices fell US$5/mt to an eight-month low in the first week of October due to lower equity markets and a weakening euro. Negative macroeconomic news caused greater losses in coal prices for next year than for the remainder of 2011 due to 2012 growth expectations being adjusted downwards. Prices remained below US$120 for the remainder on the month as concerns about the euro debt crisis continued. 

Electricity: The electricity element of the index was down 3pc to 114 as wholesale electricity spot prices fell by 3pc in October. Wind levels remained high on average in October and when combined with increased availability of lower cost generation plant during the month, the net effect was a fall in wholesale prices.

Carmel Doyle was a long-time reporter with Silicon Republic