Oil accounts for less than 2% of the UK's generation. When demand is below 45GW and there is additional margin of a further 10GW with oil being the most expensive way of producing power it is fair to say that it does not come into play.

So one would think that a recent IEA report which states that the oil production cuts announced over the last two months by OPEC are beginning to hurt the oil market would have little or no effect on the gas and power market. It is fair to say that both the gas and power markets have not really moved, but this is mainly because the oil stories are keeping the buyers nervous and the weather and demand stories are keeping the sellers nervous.

Oil was and is still used as the price comparator on gas contracts. Traditionally oil companies extracted gas, they were used to hedging exposures using oil and so would hedge their gas exposures using oil. This meant that the gas price became inextricably linked and certainly more correlated to oil prices. As the UK developed faster than many of the European markets its reliance on long term oil contracts became less. But in Europe where Total and Edf still dominate so does oil. As gas starts to flow from Northern Europe to southern Europe, if dependency on oil needs to wane then the effects on gas increase and the UK becomes a big exporter yet again.