The Shipley Energy Commercial Solutions Team is excited to share with you the April Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read lasts months energy market update here.
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Natural Gas Update
Electricity Update
Petroleum Update
The May 2023 NYMEX Natural Gas contract expired at a price of $2.117/mmbtu. This is the lowest settlement price for a May NYMEX contract since 2020 ($1.794). Nymex natural gas prices have fallen back to 2020-level lows due to mild weather and low heating demand. The prompt NYMEX contract for June 2023 is currently trading in the $2.30-$2.39 range.
Concerns of winter gas supply shortages in the U.S. and Europe were avoided due to much warmer than anticipated winter weather. The mild temperatures have allowed U.S. supplies of natural gas in underground storage to move ahead of the 5-year average level for this time of year. If this trend continues, the market would be on pace to enter next winter with higher levels of gas in storage than the prior winter which could help to alleviate supply shortage fears.
The Freeport LNG (liquified natural gas) facility in Texas has now returned to full operating power and is receiving deliveries of natural gas up to the full capacity of 2 BCF (billion cubic feet) per day. Offline from June 2022-March 2023 following an explosion, Freeport accounts for approximately 20% of the total U.S. LNG exports. Freeport’s return reduces the amount of natural gas available domestically, however with winter storage sitting at above average levels and low demand for heating, the market is showing little signs of worry.
Action Advice: With low demand due to mild weather, the NYMEX natural gas market has reached low prices not seen since the height of the Covid-19 pandemic. Now is the optimal time to lock in fixed natural gas supply rates for the next 12 months. Act now before Summer when demand for natural gas will start to climb to fuel electricity generation.
Other rate options include Basis Only or NYMEX Lock deals to separate the two elements of your natural gas supply price to look for potential value vs standard Fixed pricing. Ask your Account Manager for details.
May 2023 Natural Gas NYMEX Settlement Price: $2.117/mmbtu
Last month: April 2023 Natural Gas NYMEX Settlement Price: $1.991/mmbtu
Last year: May 2022 Natural Gas NYMEX Settlement Price: $7.267/mmbtu
The story of April was as two-faced as the electricity market gets. On the one hand, customers lucky enough to be unhedged between now and November 2023 continue to see tremendous opportunity that harkens back to late 2020 numbers. On the other hand, 2024 and ’25 markets held steady at a significant premium to 2023, and even climbed a bit.
Looking at PJM West Hub prices at the PPL zone (energy only – remember these are not all-in prices), May is trading at 3.23 cents per kWh and the May-Nov strip is 3.89 per kWh. Both are a total steal compared to a similar strip in 2022 of 9.71 cents. You read that right – it costs a third as much to lock in the next seven months as it did this time last year. By contrast, January 2024 is trading at 8.87 and January 2025 at 9.04. Winter continues to put chills in the market, even after what just happened (or really, did not happen).
In a 90-second conversation, we can get a sense of your risk tolerance and appetite to play the energy market and help you decide how to capitalize on this moment. Reach out to your Shipley Energy advisor today.
A contango market structure (where futures are trading higher than current spot prices) returned for NYMEX HO futures. Presently, demand for distillates is being hampered by lackluster economic industrial and manufacturing data.
April started out with OPEC announcing a massive +1 million barrel per day cut (which started in May) in crude oil production causing the crude oil market to gap higher by ~+6%. It was first received as bullish, as market analysts said supply in the physical crude market was already tight, and these cuts would cause supply disruptions. The futures market was short coming into the announcement based on weak macro fundamentals driving demand lower. Most of the rally was received as short lived, and once the buying was ended (short covering), the market refocused on the weaker demand fundamentals as it erased the rally seen in crude, distillate, and gasoline.
Seasonally, summer driving demand has yet to hit full steam ahead. Numerous refiners look to quickly wrap up maintenance and get back online consuming crude and producing refined products to meet the naturally increasing seasonal demand. Converse to what we have seen over the last year, the picture has now shifted away from supply shortages to demand.
Although inflation data is falling year-over-year, it is unknown if the Federal reserve has completed its Fed Funds interest rate hiking cycle. History portends that the Fed typically overshoots during tightening cycles and the market received another 25bps rate hike on 5/5/2023. The adage, “Sell in May and go away, come back after Labor Day” typically lends itself to the slower summer equity markets price action. However, if the equity market has initially topped, the statement could hold true and that energy markets are still clearly taking its queues about the longest predicted recession in recent memory.
Energy futures contracts have broken all support, with bear market relief rallies being sold off in short order. This creates opportunities for those focused on the forward market and budgeting cash flows. Gone are the recent days +$4-$5 spot prices at the rack for ULSHO and ULSD as the futures market for HO appears to be focusing in on the 2.22 area in the front month. Prices have not been seen or traded since the White House announced the first Strategic Petroleum Reserve crude oil release in November 2021. From that point on, the market held $2.00, and a rally ensued in forefront of the Russian Ukraine war supply crisis. The Fed may be finished raising rates for some time which will allow the lagging economic data to catch up.
Overall price trends month-to-month have been lower. Although lagging, revised higher refined product demand is still lower year-over-year in comparison to past years including 2014, 2015, 2019, 2020 and 2022. The market is looking ahead to what impact the Fed will have on the broader markets, including the US Dollar, which has a direct correlation on energy prices.
We are targeting lower for both HO and RBOB. HO 2.14 to 2.22-2.25 in the front month. While the winter HO strip calendar months Nov-Apr is only 2cpg backward – flat, falling from a high last year close to 20cpg. Winter strips are in slight contango, which begins to help with carrying costs.
Please continue to speak with your Shipley Energy Fuels Advisor to help your business navigate the current market.
Disclaimer: The market update is intended solely for informational purposes only. Shipley Energy Company does not warrant or attest to its accuracy. All actions and judgments taken in response to this report are the recipient’s sole responsibility. Shipley Energy Company shall not be liable for any direct, indirect, incidental, consequential, special, or exemplary damages or lost profit resulting from these market updates.
