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“Ed Miliband could be a winner from the oil slump”
So who is the big winner from the recent Brent crude oil price crash? The surprise victor may turn out to be none other than Labour leader Ed Miliband.
His distinctly anti-market threat made 18 months ago to freeze retail energy prices if elected made sense (politically, if not economically) amid concern over rising wholesale prices. But it carries a lot less weight with the electorate when prices begin to slide.
Luckily for him the collapse of the global oil price has driven the UK’s gas and power markets to historic lows, offering a far more politically appetising option: the only thing better than threatening to freeze rising energy bills is to cut bills which just refuse to fall.
Analysts have unanimously pointed out that forward hedging positions have not yet had enough time to unwind. But Miliband’s plan is to give Ofgem powers to force a cut before the 7 May election.
But how much of a cut would be fair for Ofgem to impose?
Determining the exact costs faced by energy companies is no easy task. The regulator would be forced to untangle the cost of liquefied natural gas deliveries and pipeline supply, hub-based and oil-indexed contracts, and complex forward market hedging.
It takes water regulator Ofwat more than a year to regulate water prices, and that’s for a market where it is far simpler to work out what costs what than energy. To threaten energy cuts in three months is not reform – it’s electioneering at its most cynical.
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