Shipley Energy

Energy Market Update July 2022 Recap

Our Shipley Energy Commercial Solutions Team is excited to share with you the July Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market.

Overall Energy Market Update

Consumers saw relief at the pump mid-July, with gasoline prices taking a small dip. Fuel prices, along with domestic and global energy prices, continue to affect the prices of consumer goods, especially food products. The Biden administration just announced on July 26th another sell off of up to 20 million barrels of crude from the Strategic Petroleum Reserve, as it attempts to manage the impacts of inflation and rising energy costs across the nation.

While the average national price for diesel is starting to decline, it is not doing so at the pace that gasoline prices are. This is partially due to a significant increase in fuel exports to Europe to help compensate for reduced supply from Russia. With the Russian war on Ukraine continuing, there is still uncertainty in the oil market. This has caused a lot of volatility in oil prices during July.

We saw some record high temperatures in July, causing electricity demand to skyrocket and demand for natural-gas-fired electric power to increase. Electricity rates are seasonally higher in the summer because of higher demand and pressure on power grids. Businesses can help combat higher seasonal rates by locking in with fixed rates in the Spring or Fall and by signing up for programs like Peak Shaving and Demand response. These programs provide incentives for businesses who can react quickly during peak electricity demand days or hours to reduce their usage.

After peaking near $10 on June 8th, the natural gas futures market tumbled to a low of just above $5 by July 7th due in large part to the outage at the Freeport Liquified Natural Gas export facility in Texas. The Freeport outage has supplied up to 2 billion cubic feet per day of additional natural gas supply into the United States that would have otherwise been exported to ports in Europe and Asia. Freeport is expected to be offline until at least September 2022.

Despite this additional available supply, natural gas futures have climbed back up to hit a high of $9.75 in trading on July 26th. Price rallying is expected to continue due to global energy shortages, reduced natural gas supplies being exported by Russia, and record high temperatures across the US.

There are several options available to businesses looking to manage their fuel and energy budgets and save some money before the end of the year. Reach out to an Energy Advisor at Shipley Energy today to discuss your options.

Natural Gas Market Update

After peaking at $9.664 on June 8th, the natural gas futures market tumbled all the way to a low of $5.325 by July 7th due in large part to the outage at the Freeport LNG (Liquified Natural Gas) export facility in Texas.

The Freeport outage has provided up to 2 BCF (billion cubic feet) per day of additional natural gas supply into the United States that would have otherwise been exported to ports in Europe and Asia. Freeport is expected to be offline until at least September 2022.

Despite this additional available supply, natural gas futures for August settled at $8.687/MMBtu – up 132% from July’s natural gas contract.

 The latest price rally is being fueled largely by:

  • Global energy shortages.
  • The expected further reduction of Russian natural gas supplies being sent to Europe.
  • Record high temperatures throughout the country are driving up air-conditioning use and increasing demand for natural gas to generate electricity.

Action Advice:

Even with natural gas futures prices on the rise again, there are still opportunities to lock in longer renewal terms in the 24–36-month range at better pricing. Futures pricing beyond March 2023 drops down into the mid $5 range, compared to prices in the near term (August 22-March 23) reaching above $9. Ask your Account Manager about 24–36-month renewal options to take advantage of lower prices in further out months and protect yourself from the unknowns of this winter.

Other options include Basis Only or Nymex Lock deals to separate the two elements of your natural gas price to look for potential value versus standard fixed pricing. Reach out to your Account Manager today for details.

  

August 2022 Natural Gas NYMEX Settlement Price: $8.687/MMBtu

Last month: July 2022 Natural Gas NYMEX Settlement Price: $6.551/MMBtu

Last year: August 2021 Natural Gas NYMEX Settlement Price: $4.044/MMBtu

 

 

Electricity Market Update

Wholesale energy markets continue to see elevated levels of volatility, with natural gas and electricity prices moving up over 5% on multiple days in the last few weeks. This leaves commercial electricity and natural gas users with some tough decisions to make, based on tough-to-predict factors like weather, the impact of the war in Ukraine on natural gas exports, and the direction of our economy.

Key Points 

  • Rising coal and natural gas prices, as well as record-breaking warm weather, have pushed electricity prices up by 14%.
  • Prices for the remainder of 2022 and Q1 of 2023 are $20/MWh (2 cents/kWh) higher than prices starting in April 2023.
  • Significant risk exists that prices in 2023, 2024, and beyond will rise – lock in your next electricity rate as early as possible to avoid rising energy spend in those years.
  • While price volatility has led to occasional price “dips,” the overall price trend is up – a “wait and see” strategy has been ineffective so far this year.
  • Expect high prices and lots of price volatility in the future – if you see a price that works for you, grab it.

One strategy that appears highly unlikely to work is the “wait and see” approach. Wholesale prices, while volatile day-to-day, are trending upwards. Getting an early start on developing your energy buying strategy—and not waiting until the last minute to renew your contract—protects yourself from the consistent intraday movements we are currently experiencing.

Action Advice: 

  • For larger energy consumers, making use of a contract structure that allows for a more flexible and active energy hedging approach is advised in this market.
  • We advise customers to speak with an in-market expert regarding their energy purchasing strategy. For businesses that use less energy or that do not have a significant portion of their budget tied up in energy bills, market timing will be critical – make sure you have a trusted supplier or advisor that can get you access to the lowest rate in the market quickly and efficiently so you can lock in during a market dip.
  • Energy buying in this market is not a “do-it-yourself” prospect – make sure you are getting expert advice from a trusted supplier or an advisor that will protect your best interests.

 

 

Petroleum Market Update

The energy markets have continued their volatile price swings, overall moving approximately 15% lower as calls for recession grow louder, while the Federal Reserve continues to raise rates up 75 basis points. Russian oil continues to make its way to market, avoiding limited sanctions and bans, while China continues to lock down cities crimping global demand expectations. 

The supply/demand push-pull effect has given way to lower prices as fundamentals are proving out, for now.  Summer markets are typically quieter as many traders and market participants are vacationing.  Shortly, on the fuel side, we expect fundamentals to again come into focus, for distillates as the physical supply situation has not been rectified; this affects the Northeast with decreasing stocks heading into cooler months.  As traders and market participants return, we expect an uptick in trading volume and volatility.

At the time of writing, the front month heating oil futures are $3.42/gal. We expect diesel and heating oil spot future prices to stay well supported below in the $3.00 – $3.25 range. If WTI crude oil breaks current support at around $90 per barrel, we could expect prices to quickly trade down to the $88 – $85 range.

 

Key Points 

  • OPEC+ agrees to minimal crude production hike September output of only 100K barrels per day.
  • Insufficient investment in crude oil and energy production will impact the availability of adequate oil supply to meet demand beyond 2023.
  • OPEC+ is roughly 3 million barrels per day behind its production quotes, said to be crippled by other members’ inability to grow production.
  • Seasonal distillate/diesel demand is set to rise as refinery production runs are off peak and Northeast distillate stocks are down to 14.7 million barrels while exports rise.
  • Recent petroleum energy prices swoon expected to dampen recent record inflation.
  • Slumping gasoline demand facing headwinds related to recent all time high national average per gallon.
  • Gasoline demand trails last year’s figures, as consumers spending pulls back.

 

Action Advice:

Gasoline, the weakest of the contracts, is nearing key support at $2.80/gal with long-term support coming in at $2.75/gal. We feel these front month levels should be seriously considered when support is accepted.  Energy markets and the trading environment are very dynamic, with broad price swings expected to continue to dominate headlines.  Please consult your trusted Shipley advisor to help with solutions to ease price volatility.

 

July Energy Market opens and closes

 

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.

Aug 5, 2022
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