All aboard the oil price merry-go-round

Elizabeth Fournier
SO EDF has taken the first step among the Big Six, and not only sparked rumours of a price war but also sent its competitors’ shares crashing in the meantime.

The five per cent drop in gas prices only goes some way to recouping the 15.4 per increase it implemented back in November, but talk of a “mild winter” and “passing on falling wholesale prices” is bound to spark hope among stretched consumers of further cuts.

But the truth is much of the decision lies way out of EDF’s control.

As 2012 gets going, oil prices do seem to be declining – benchmark crude fell to $101.38 per barrel in New York – but there’s little consensus among analysts as to why.

Many cite Iran as the biggest threat to global oil supply (and prices will certainly rise once EU sanctions are imposed), but others say the market is feeling more positive about the chances of avoiding another full-scale financial crisis, and so hoping any impact on economic growth and the oil market will be limited.

Either way, it doesn’t look like wholesale costs will continue their downward trajectory for long.

Price wars may play into the hands of consumers but flip-flopping never impresses, and investors are unlikely to be happy with the pressure it will inevitably put on profit margins. Competitive pressure means the rest of the Big Six will almost inevitably follow EDF at some point, but expect it to be to the detriment of their investment case.