Our 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.
In late April, Russia banned fuel exports to Poland and Bulgaria. This action prompted further discussion for the European Union to ban more Russian oil imports and has been a positive driver of oil prices. Wild swings in the oil markets are forecasted to continue.
Natural gas continues to surge and is currently sitting 114% higher than it was January 1st. Temperatures in the west aren’t expected to warm up until mid-to-late May, causing an above-average demand for natural gas this time of year. Natural gas storage inventories are 21% less than the same period last year.
In the electricity segment, April saw new 13-year highs for the PJM grid. The forward 12-month curve increased 41% to 10.02 cents per kilowatt hour. Pre-covid rates are no longer a reasonable standard to compare today’s prices to. The team at Shipley Energy advises customers to budget for higher energy costs because the factors contributing to a bullish energy market are not going away anytime soon.
Oil prices continue to be affected by the war on Ukraine but a new factor, shutdowns in China, poses new problems. There are concerns about whether Chinese oil demand will remain strong in 2022. Some analysts are calling the lack of demand in China a temporary setback for oil prices. Saying that the variants that are causing the mass shutdowns will pass and production will go back to normal. However, only time will tell.
From a more long-term view, what’s going on in Russia is far more serious. Russia’s move to stop fuel exports to Poland and Bulgaria is pushing the European Union to increase discussion on banning more oil imports from Russia. JPMorgan Chase warned that if the EU acts too quickly to ban Russian oil, it will displace more than 4 million barrels per day, which could drive prices to as high as $185 per barrel.
US oil giants like Exxon, Total, and BP are leaving Russia, and stranding their assets. These factors equate to a long-term, systemic problem with production in Russia, which could ultimately lead to 3 million barrels of oil a day coming off the market. This is a very big deal for long-term prices.
Watch the petroleum market update video on YouTube.
Volatility for refined products and other commodities to remain sky-high. Producers, traders, and market participants have continued to decrease with unprecedented market backwardation and volatility further decreasing any incentive to carry product inter-month if not managed correctly. The feedback loop for this month remains. Higher backwardation, lowers liquidity, increases volatility and elevates basis. As stated all year we do not expect the volatility to abate for the balance of 2022 and expect the back months to continue to “roll up” to meet prompt month price levels. Barring any economic collapse or deep recession or complete reversal in OPEC policy we believe higher fuel costs are here to stay. We suggest reviewing new enhanced customized fixed and variable strategies with your sales advisors to help alleviate upside price risk.
With inflation’s exaggerated effects on energy prices, we have seen significant increase in energy prices in the near term. The graph shows us that the price for natural gas for mid-’23 and forward has not risen like the nearer term prices have risen. If you need natural gas during this time period starting Spring ‘23, now would be a good time to lock in rates that are significantly better than the nearer term rates.
Since electric (power) prices are associated with the cost of natural gas, this thought also generally applies to electric rates.
Natural gas continues to surge and is currently sitting 114% higher than it was January 1st. Temperatures in the west aren’t expected to warm up until mid-to-late May. This is causing an above-average demand for natural gas this time of year. Natural gas storage inventories are 21% less than the same period last year.
We recommend that those looking to renew in the near term reach out to account managers for daily price updates. The opportunity to lock in on days when pricing is lower relies on staying up-to-date on moves in the market. Customers should review fixed natural gas terms in the 24-36 month range to secure their gas supply over a longer term and take advantage of lower prices and less volatility in the months beyond the current 12-month curve.
The climb continues with no end in sight for the electricity world. April saw new 13-year highs for the PJM grid. The forward 12-month PPL curve increased a whopping 41% from 7.09 cents to 10.02 cents per kWh. These are energy-only rates, which historically have accounted for about 60% of a customer’s all-in fixed price. Adding in Capacity, Transmission, Ancillaries and GRT could easily produce all-in fixed rates of more than 14.00 cents per kWh for a business looking to go short-term.
The good news is that April 2023 begins a notably lower strip of energy which only drops lower in 2024 and beyond. For example, a calendar 2023 strip in PJM Western Hub is trading around 7.40 cents and the same strip in 2024 is down to just under 5.00 cents flat. Now all of these rates are far north of pre-Covid numbers which fell well below 3.00 cents per kWh… but as we have said before, pre-2020 is no longer a reasonable or relevant standard to compare against. Everything has changed post-Covid, post-inflation, post-LNG, and post-Russia/Ukraine, and even utility prices to compare are finally getting the memo.
First Energy announced its small customer prices to compare for this summer, showing a 42% increase in Met-Ed to 10.62 cents and a 55% increase in West Penn Power to 10.11 cents. Each utility is posting its highest rates ever in the deregulation era.
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.May 4, 2022
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