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Escalating tensions in the Middle East are continuing to put pressure on global energy markets, with disruption to oil infrastructure and concerns over future supply contributing to higher prices and increased volatility.
For UK care providers, these developments matter because movements in global oil and gas markets can ultimately influence the price businesses pay for energy.
With European gas storage also lower than at the same point last year, uncertainty is increasing as we move towards winter.
Recent developments in the Middle East have increased concerns about the security of global energy supplies.
Attacks on Saudi Arabian energy infrastructure, alongside continued disruption and uncertainty around important shipping routes in the Middle East and Red Sea, have added further pressure to already sensitive wholesale markets.
The relationship between the different energy markets can be summarised quite simply:
Gas follows oil, electricity follows gas.
Although the relationship is not always immediate or exact, significant disruption to global oil and gas supplies can feed through into wider wholesale energy markets, including those affecting UK businesses.
When concerns about supply increase, markets can react quickly. That is what we are currently seeing.
European gas storage is another important factor I am watching as we approach winter.
Storage provides an important buffer during periods of higher demand. If storage levels are lower going into the colder months, European energy markets can become more exposed to cold weather, increased demand or further disruption to supply.
This matters to UK businesses because our energy market does not operate in isolation. Changes in European gas supply and demand can influence wholesale prices in the UK.
The combination of geopolitical uncertainty and tighter supply fundamentals therefore creates the potential for continued volatility as we move towards winter.
It is too early to suggest we are heading towards a repeat of the energy crisis experienced between 2021 and 2023 following Russia's invasion of Ukraine.
However, I do believe the current situation deserves attention.
If tensions in the Middle East do not de escalate and supply fundamentals continue to weaken, there is potential for energy prices to move higher from current levels, with further volatility along the way.
Any future disruption may not be as severe or as prolonged as the previous energy crisis, but businesses should be aware of the changing market conditions.
For care providers in particular, forward planning is important because energy is often a significant and unavoidable operating cost.
Care organisations can be particularly exposed to changes in energy costs.
Care homes need to heat buildings for extended periods, provide hot water, operate kitchens and laundries plus power equipment throughout the day and night.
For providers operating multiple locations, relatively small movements in energy prices can become significant when multiplied across an estate.
Those approaching the end of an existing energy contract may also find that the market looks very different from when their current agreement was arranged.
Understanding your position early gives you more time to consider the options available.
There is no single answer that will be right for every care business.
The appropriate approach depends on when your existing contract ends, your current rates, energy consumption, appetite for risk plus the level of budget certainty your organisation requires.
I would not recommend making a procurement decision based purely on a sudden market movement or worrying headline.
Instead, it is important to understand your current position, monitor what is happening in the wholesale market and consider your options well before your existing agreement expires.
Starting that process early does not mean you have to commit to a new contract immediately. It simply gives you more information and more time to make an informed decision.
My advice is to start by checking when your existing electricity and gas contracts expire.
You should also consider whether your energy requirements have changed since the contracts were arranged. Acquisitions, new locations, refurbishment, changes in occupancy or changes to the services you provide can all affect consumption.
Most importantly, avoid waiting until the final weeks of a contract before reviewing the market.
The earlier you understand your position, the more opportunity you have to monitor prices and consider the available procurement options.
Energy markets can move quickly and geopolitical developments remain extremely difficult to predict.
My role at Quality Care Group is to monitor wholesale energy markets and help care providers understand what those movements could mean for their organisation.
The current combination of Middle East tensions, supply concerns and lower European gas storage means there is reason to remain cautious as we approach winter.
That does not mean care providers should panic or rush into an energy contract.
It means they should be informed, understand their exposure and start planning early.
If your care organisation has an energy contract approaching renewal or you would like to understand how current wholesale market movements could affect your future costs, get in touch.
I can review your current position, explain what is happening in the wholesale market and help you understand the options available to your organisation.
