The 2020 oil price crash: How does it compare to previous events?

This feature is part of our new Energy Market Watch coverage where each week we will provide insights and analysis on the latest trends in commodity markets, grid balancing and market fundamentals as the impacts of COVID-19 continue to emerge. You can sign up for the regular free update here.

Brent crude oil prices fell to a 17-year low of below $26/bl on 18 March 2020, following the impacts of COVID-19 on global demand and oil price disputes between Russia and Saudi Arabia. The recent crash saw prices record the biggest daily loss since the end of the Gulf war in 1991. In this Energy Market Watch Analysis, we assess how the crash has impacted on power and gas prices in 2020 so far and how this compares with two other historic price falls, the 2008 financial crisis and the 2014-16 oil price crash.

The 2008 global financial crisis

The global financial crisis (GFC) in 2008 wreaked havoc on financial markets and eventually the oil market. Brent crude prices had risen to an all-time high of over $140/bl before oversupply and suffering global economy saw the commodity crash to below $20/bl by the end of the year. This is reflected in gas and power prices, which saw the greatest movements following the collapse of Lehman Brothers (September 2008) and the subsequent bailing out of the American economy. Over the period oil dropped by 73.7%, with gas and power following slightly lower with 72.3% and 67.7% falls.

Brent crude oil, season-ahead gas and season-ahead power prices 2008 2009

2014-16 oil price crash

Similar to 2020, though still unique to the current situation, was the oil price crash in 2014/15 as a result of a price dispute between the US and Saudi Arabia. Since the GFC in 2008, Brent crude oil prices had risen back above $100/bl in 2012 and remained there in 2014, which had also seen gas and power prices rise. Similarly to 2008, the price crash lasting nearly two years saw GB power and gas prices fall to fresh six year lows when oil prices eventually troughed in early 2016. Over the period oil dropped by 75.8%, with gas and power following lower with 59.0% and 41.6% falls.

Brent crude oil, season-ahead gas and season-ahead power prices 2014 2016

2020 pandemic – how low can prices go?

So, can these previous crashes teach us anything about the 2020 trends?

The chart below compares the three oil crashes in the first 100 day period from when prices started to decline from their peak. While the 2014-2016 price crash occurred over a long period of time and much slower than the current one, the rate at which oil prices initially fell since the start of the year was comparable to the rate at which they fell in 2008. Where the two rates begin to diverge is when prices crashed due to conflict over output cuts between Russia and Saudi Arabia; meaning that prices fell to half their initial value about 30 days quicker than in 2008.

First 100 days of the crash changes on peak value - GFC 2014-2016 crash and 2020 COVID-19 coronavirus pandemic

So far in 2020, Brent crude oil prices had fallen more than 60% since peaking at $69.75/bl in January when they hit a 17-year low of $26.33/bl on 19 March. Gas and power contracts have thus far followed the trend, falling 32.7% and 21.1% respectively. The rapid rate of decline of these prices has had a clear influence on season ahead gas and power as seen from the chart above, where seasonal prices for GB gas and power have also been in freefall since the turn of the year. It is worth noting that these seasonal prices did not react to the significant drop in oil seen a couple of weeks ago, when Saudi Arabia took the decision to flood the market with oil. Perhaps markets don’t envisage the kingdom being able to withstand such significant drops to oil prices and expect them to revoke their actions?

Brent crude oil, season-ahead gas and season-ahead power prices 2020 so far

More interesting than the geopolitics at play here is the continual correlation between GB gas and power contracts with Brent crude oil throughout all of these scenarios. It has been assumed previously that as the UK gas mix has become less dependent on European or “continental” gas, typically from Russia and pegged to the oil price, that NBP gas markets would display more distinct trends from the oil market. However, 2020 so far shows this is not necessarily the case. 

The explanation for the this is partly due to the resurgence of LNG imports into the UK over the past couple of years. Whilst the European, and Norwegian, share of the gas mix has declined LNG has increased to averaging roughly a third of all gas in UK. This has likely kept a similar share of the NBP gas market which is linked or indexed to the oil markets in some way. With gas still the marginal fuel in the power market, the correlation of oil to gas therefore continues to feed into the power markets.

As the impacts of coronavirus on the energy markets continue to shift daily the trends in global oil markets will likely continue to impact GB energy markets both on the producer and consumer side of the market.

Sign up to receive our free ‘Energy Market Watch’ updates direct to your inbox.

Related thinking

Energy Market Design

Energy market volatility remains evident amid a delicate geopolitical landscape

Recent events, from the worker strikes at the Chevron-owned Wheatstone LNG facility in Australia to the Israel-Hamas conflict, have highlighted the potential for disruption to energy exports. The Wheatstone and nearby Gorgon facilities account for ~5% of global LNG supplies. Whilst Europe is not the recipient of notable volumes of...

Energy storage and flexibility

What is Liquefied natural gas (LNG) and how did it help UK and Europe this winter?

What is Liquefied natural gas (LNG)? Natural gas that has been cooled down to a liquid form is known as liquefied natural gas (LNG). The cooling process shrinks the volume of natural gas making it easier and safer to store and ship overseas. Natural gas is a fossil fuel which...

Regulation and policy

Energy Price Guarantee – Counting the Costs

Modelling from Cornwall Insight has forecast the two-year cost of the Energy Price Guarantee (EPG) to be between £72bn in the lowest case scenario, and £140bn in the extreme high case scenario1. The data included in our new EPG report ‘Counting the Costs’, shows a near doubling of the forecasts...

Power and gas networks

Gas DSR reforms ahead of winter 2022-23

National Grid has recently carried out a review of the Gas Demand Side Response (DSR) voluntary curtailment mechanism through July and August. The Gas DSR allows shippers to offer a consumption curtailment service to National Grid Gas (NGG) during periods of acute gas supply constraint called a Gas Deficit Emergency...

Home supply and services

Cornwall Insight comments on the announcement of the October price cap

If you are a consumer seeking support with their energy bills, please read our blog here: The rise in the Default Tariff Cap (price cap) was unfortunately inevitable, as UK bills continue to be the victim of an unstable and unpredictable global market. While there is still some time until...

Home supply and services

Cornwall Insight release final predictions for October’s Price Cap

If you are a consumer seeking support with their energy bills, please read our blog here: Cornwall Insight are releasing our final predictions for October’s Default Tariff Cap (Price Cap) prior to Ofgem’s announcement on Friday 26th August. Predictions show a typical household1 will be paying £3,554 equivalent per year...

Home supply and services

Price cap forecasts for January rise to over £4,200 as wholesale prices surge again and Ofgem revises cap methodology

If you are a consumer seeking support with their energy bills, please read our blog here: Our new forecasts for the January Default Tariff Cap have risen by over £650(1), meaning a typical household is now predicted to pay the equivalent of £4,266 a year for the three months to...

Home supply and services

Price cap to remain significantly above £3,000 a year until at least 2024

Our latest forecasts for the Default Tariff Cap have shown a typical household’s energy bill will be well over £3,000 a year for the next 15 months, with the average bill over Summer 2023 (Apr-Sep) sitting at £3,649 – just over £300 per month. We have also updated the predictions...