A recent article in The Times has suggested that a study conducted by the Centre for Global Energy Studies (CGES) has shown that the oil price has additional $20 to cover risk premia and fear factor. In fact the fundamental oil price should be at $53 a barrel. Whilst this study is interesting and proves what we all know about markets that they are not always driven by pure fundamentals, it does not get away from the fact that the price is high and is likely to remain so as players continueto value the cost of fear and inflate prices to reflect the risk of another war, or field closure.

It is also fair to say that every market has seen their risk premia inflated in the last two years partly led by oil but in the gas market the rise was due to a fear that the Europeans would withold supplies to the UK. In the electricity market a fear that the world will see a greater need to burn more coal and therefore exponential rises in underlying emissions prices.

There will always be this fear in a market (sometimes the fear can be a bearish sentiment as well as a bullish setiment but they are rarer!) the key is when to believe the fear and when not to. At the moment we are seeing heavy bearish sentiment and a break down in the traditional spark and dark spread levels. They no longer have to be £10 plus, and this suggests to Powerisk that the fear factors in electricity and gas are getting less, stability is returning and the volumes are reflecting this. The lack of panic in the prompt seen recently suggests that this market is stabilising.