Oil prices were up by around 5% in January, supported by growing geopolitical risks to supply and tighter oil market balances. The risk of oil supply interruptions is growing with political instability, sectarian conflicts and terrorist threats.
Oil prices gain support as positive data from top consumers United States and China reinforce a view that the global economy is headed for a modest uptick this year. US employment numbers and confirmation of a mild recovery in China relieve some concerns about weak fuel demand. Purchasing manager surveys showed that the euro zone manufacturing sector, despite a contraction, had their best month in a year, suggesting the worst may be over.
Colder than normal weather pushed average UK gas prices up by nearly 9% in January, with a peak of 72.4 p/th on the 17th of January when demand was approaching 400 mcm/day. Demand dropped to below 300 mcm/d last week with milder temperatures. Prices softened during the week until a rise in demand accompanied by a drop in Norwegian flows pushed prices higher on Friday.
February prices will most likely remain strong as seasonal demand is high, Troll output is reduced by 35 mcm/d through April 1, and LNG pulled away by strong demand in Asia and South America.