2020 brought many disruptions to the energy market, causing oil and natural gas prices to plummet, allowing for highly favorable energy prices for consumers. Now it looks like the market is starting to recover.
For the bulk of last year, energy demand had decreased due to an unprecedented shift toward working from home across multiple sectors. Natural gas storage was at a record high throughout the year, causing electricity prices to drop. Now that the industry has had time to adjust, natural gas storage to working back towards more typical levels.
Where is the market going?
The energy market as a whole is now set for a correction. Oil prices are already returning to pre-pandemic prices. This means energy users will soon see the cost of energy increase as the price of natural gas closely follows oil prices, and production is no longer in as much of a surplus.
How does this impact procurement?
When it comes to energy procurement practices, timing is everything. Some brokers or consultants may claim that their buying power will help with savings on energy costs, but the real driver of optimizing rates is timing. Energy suppliers can only do so much about their margins. A smart buyer needs to time their contracts in line with the ebbs and flows of this commodity.
The US Energy Information Administration expects wholesale electricity prices in many areas of the country will be higher than during the pandemic last year, reflecting the increased cost of natural gas for power generation. This trend means that even if your current contracts have time left on them, now is the time to start developing a strategy for the next RFP process.