Wholesale gas prices have dropped. Will our energy bills start to fall?
A while ago, This Site reported that wholesale gas prices had fallen by 45 per cent. Now they’re down to parity with where they were 18 months ago – before the various crises that pushed them up.
So, are we going to see matching reductions in our energy bills?
The jaded among you will not be surprised to learn that the answer, according to This Is Money, is no.
See what you make of the reasons:
Prices have started to fall back in recent weeks as a milder-than-expected autumn has reduced demand, and a flurry of cargoes arriving at ports across Europe has eased supply concerns.
Nathan Piper, head of oil and gas research at Investec said: “This is likely to be a temporary respite ahead of colder winter weather and associated increase in gas demand for heating.
“Although the spot price has declined to the ten year average, the forward curve continues to indicate high prices throughout the next two years leading to significant parts of European industry shutting down.”
That’s one reason. Here’s another:
Energy companies ‘hedge’ by buying gas and electricity well ahead of when it is needed. Suppliers will buy a certain amount of energy in advance to lock in the price and to reduce the risk of adverse price movements.
It means that our monthly bills don’t reflect today’s prices, but rather the wholesale cost from when the supplier first paid for the energy.
Currently our household energy bills are being kept artificially low by the energy price guarantee, and don’t represent the actual wholesale price being paid for by suppliers.
Had the £2,500 guarantee cap for the average household not been put in place, Ofgem would have increased its price cap [for an “average” household] to £3,549 per year in October 2022.
Should wholesale gas prices continue to fall, the Government is likely to be the beneficiary given [it is] footing the bill.
A prolonged and seemingly permanent drop could eventually lead to new fixed rate deals being offered below the price cap, but firms are likely to be very cautious on doing this.
So your only chance of getting lower fuel bills is if the climate change, that so many Tory MPs want to deny, continues to affect us until April.
In that event, it seems to me that we’ll have to accept we’ve gone past the point of no return as far as that calamity is concerned, and this one – energy prices – won’t be particularly relevant any more.
Or is that too pessimistic?
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