Buyers look to futures market to mitigate energy prices

17 October 2011

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17 October 2011 | Adam Leach

Two thirds of buyers would consider buying energy on the futures market for at least the next year over fears that inflated prices are here to stay, a survey has found.

The findings, published on Friday by EnergyQuote, found 63 per cent of buyers expect energy prices to continue rising over the next two years, with just five per cent forecasting a drop. With confidence low on the prospect of reduced prices, more than two thirds said they would consider forward purchasing, where oil is bought in advance on the futures market, to mitigate future rises.

The survey, which was completed by more than 50 energy buyers with an annual budget of up to €20 million (£17.5 million), found that 44.4 per cent would buy at least half of their energy for the next one to two years on current futures market prices, while 22.2 per cent would purchase two or more years of supplies.

Gary Worby, managing director of EnergyQuote, said: “Our survey indicates that rising energy costs are set to be the future norm adding further pressure to the competitiveness of European intensive energy consumers. This damaging trend will have enormous potential to impact on corporate profitability while the Eurozone remains a slow growth region.

“It is therefore of paramount importance that European energy consumers have a formal risk management strategy that fully reflects the various hedging options and renewable generation opportunities.”

Despite the current volatility in the energy buying market, 69 per cent of respondents said they have no formal risk management policy in place to cover purchasing energy. Indicating what they see as the main factors behind the current volatility, buyers ranked financial speculation by traders as the biggest cause, followed by geo-political tensions and the closure of nuclear power stations.

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