ALEX BRUMMER: Energy prices could peak in just seven months

ALEX BRUMMER: It’s a worrying time, but there is a glimmer of hope… energy prices could peak in just seven months

The speed and scale of the rise in the energy price cap – the default tariff for many – is truly shocking. 

Not only has the forecast price for January surged by over £650 per household, bringing annual bills up to £4,266 a year in the three months to March 2023, but the October 2022 cap is likely to be £200 higher than expected, according to forecaster Cornwall Insight. 

Little wonder then that energy prices have moved to the top of the political agenda for Tory leadership aspirants Liz Truss and Rishi Sunak. 

Consumers are left wondering just how high can prices go? Well, I believe there are reasons for a sliver of optimism. 

The speed and scale of the rise in the energy price cap – the default tariff for many – is truly shocking

As worrying as the latest estimates are, analysts believe that, barring an exceptionally cold winter, spiralling prices could peak in March 2023 when the next price cap is calculated by the regulator Ofgem. There are no formal forecasts as yet, but the big domestic energy suppliers are working on the basis that the March increase will be a ‘few hundred pounds’ at worst. 

That is, of course, scant comfort for people living in fuel poverty – defined as when 10 per cent of income is gobbled up by energy bills – but there is at least a light at the end of the tunnel, with the peak just seven months away. 

The message from wholesale markets is also more encouraging. Traders have sold more than one million barrels of European oil in the futures market, bringing the average price down from $102-abarrel in mid-June to $86-a-barrel in 2023 as prospects for the global economy have deteriorated and demand is expected to fall. Natural gas prices tend to follow oil prices. 

A milder winter than expected with thermostats turned down should see sufficient gas storage facilities on the Continent to avoid another spike in wholesale prices. 

Looking ahead, British Gas owner Centrica has just signed a deal to buy one million tons of liquefied natural gas a year for 15 years from the Delfin Deepwater Port off the coast of Louisiana. The £7billion agreement would start in 2026. Such a deal is no help to UK consumers in the short term but it demonstrates there is no fundamental shortage of fossil fuels. The current kinks in supplies, caused by the post-Covid recovery, Russia’s war on Ukraine and climate change activism, are not long term. 

The disruption to free markets should eventually normalise and petrol and fuel prices come down. It will then be up to the regulators to make sure falling prices are shared with households as speedily as when they are climbing

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