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Middle Eastern Geopolitical volatility
How your business can mitigate price fluctuations
The background – extraordinary activity
Oil prices surged almost 15% on Monday 16 September, the highest one-day increase in several months, following a series of drone attacks at two Saudi Aramco-owned crude-processing facilities only days before.
The attacks resulted in a nearly 50% loss of production in the country (5.7 million barrels per day) – equivalent to approximately 5% of the total global oil supply.
As a result, when the Brent crude forward market opened it saw an intense level of activity. The front-month Brent crude oil price spiked significantly shortly after opening – as demonstrated in the chart below. This resulted in an extraordinary 19% price increase within minutes (reaching close to $71 per barrel) – the biggest jump within a single day in several years. However, this then dropped by 7% (to just below $67 per barrel) after the US Department of Energy said it would prepare to authorise the use of the country’s emergency stockpile if required in order to ensure stable supply.
This sharp spike in oil prices had a knock-on effect for gas, coal, carbon and power prices, which also rose. However, Saudi officials have reassured markets that exports would continue as normal, with storage facilities used to cover a shortfall in the short-term and lost capacity expected to be restored by the end of September 2019.
The impact on business: mitigating price fluctuations
As many energy managers will be aware, in the current climate, even by maintaining its energy usage, a business is set to see bills rise over time. With global political and economic volatility, including events such as this, and geopolitical tension in the Middle East, rising energy prices are set to continue.
One way to mitigate these fluctuations is by making use of a corporate Power Purchase Agreements (PPA) – locking in attractive electricity rates and achieving price certainty, while enhancing the organisation’s sustainability profile. At Mitie, we have a team of specialist FCA approved and CIPS trained PPA experts to help advise on this continuously growing and changing market.
It’s also vital that businesses develop tailored utilities risk management strategies, to protect themselves from price fluctuations. While this may seem a simple solution, it can have a sizeable impact. We’ve helped clients manage over £1.6 billion of energy exposure by implementing these strategies.
And, finally, for a business to ensure it is best able to mitigate rising energy prices, optimising assets to have the most energy-efficient equipment on site and optimising operational processes is key. This is where an Energy Performance Contract (EPC) and/or an optimisation overview can come in. It allows businesses to upgrade assets, improve the energy and carbon performance of buildings and, ultimately, lower bills.
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