A freeze in output would stop adding to the excess supply that has caused prices to collapse from levels above GBP 70 per barrel seen in June 2014. Oil is very rarely used for electricity generation, only about 1-2% of the times in the UK. Given that the UK electricity system is based on the merit order of electricity generators in the country – i.e. the marginal cost of producing an extra unit of electricity, by which electricity generators with progressively higher costs are dispatched as demand increases, in order to minimise prices for consumers – oil is always used as a last resort because it always has the highest cost. In such a system, when the marginal generator is used it always sets the price. Thus, when oil is used it always sets the electricity price. (more…)