Shipley Energy

Market Update October 2021

Our Shipley Energy Commercial Solutions Team is excited to share with you the October Energy Market Updates to keep you informed on trends, weather, and other factors impacting the energy market. Want to catch up on what happened in September? Read Here.

Electricity & Natural Gas Market Updates

Aggressive Electricity & Natural Gas Markets –

U.S. natural gas and electricity markets hit a 20-year low right before the pandemic started and have risen ever since at a steady and sometimes aggressive clip. With national natural gas storage at a deficit, no new drilling, increased pent-up pandemic demand, droughts in the West, an unseasonably hot summer, anticipation of a cold winter, and Europe and Asia driving up natural gas exports by paying 5x what we will domestically, we’ve set a new level for market prices that can’t be compared to anything in the last 13 years.

To add insult to injury, NITS (transmission) rates in Met-Ed and PPL, which make up about 15% of your price, increased significantly earlier this year. At this time, all indications are that the market will continue to climb. Most clients are seeing an increase of 20-45% over their current contract and returning to the utility for the winter would only expose them to variable rates at an extremely vulnerable time.

Key Points for the Electric Market

  • ERCOT, NY & ISO NE pricing was lower by 2-3% while ISONE was lower by 6%. Meanwhile, PJM, MISO, and CAISO were higher by 1-2%.
  • The electricity market is seemingly more comfortable based on the idea that there will be enough gas supply this winter to meet peak demand.
  • FERC issued an order that allowed PJM to delay its capacity auction until late in January. This will give market participants more time to prepare and submit unit specific offer caps.
  • The December 2021 NYMEX contract price decreased to $5.670/MMBtu, down 52.8 cents/MMBtu from last Wednesday to yesterday and down 93.2 cents/MMBtu from the November 2021 NYMEX contract.
  • U.S. natural gas consumption increased significantly as a result of an increase in residential and commercial sectors. This was likely fueled by the colder temperatures as the Northeast heads into winter season.

Action Advice:

We are finding that price offers are lower with longer terms but are often recommending 24 months instead of 36 in the hopes that the market breaks in late 2022 or early 2023. We’re also observing greater than normal volatility in market pricing and we are suggesting that customers stay in regular contact with their Account Manager to keep up-to-date on the real-time changes to the market.

Petroleum Market Updates

Unsustainable Post-Covid Economic Recovery –

Heating oil, gasoline and crude oil contracts closed out the month some 6% higher, giving back some of the 10% contract gains seen near the end of the month.  The continued strength we have continued to witness for the past 1 year can be tied back to a few key areas we have continued to highlight:

  • Rapid rise in inflation
  • Crippled supply chains
  • Record stimulus and deficit spending
  • Reduced refinery and global refined products
  • Crude oil production deficits not sufficient to meet Covid demand recovery

Last Thursday NY futures dropped 2.5% in a volatile session. OPEC and its allies approved a 400,000 barrel-a-day production hike for December during a brief meeting. Some major-consumer countries are saying the approved hike is still too slow to sustain the post-Covid recovery. This decision by OPEC+ members is a bullish development; however, some traders are predicting that the U.S. may tap its strategic reserves to ease symptoms of inflation.

The Biden administration found itself a key player in a geopolitical showdown last week after President Biden encouraged higher production to ensure market stability. OPEC’s response lacked action, which could start being factored into pricing.

Key Points for Petroleum:

  • Despite China’s fuel reserves release, oil prices rose on Monday. This stems from a strong demand and a reflection of the belief that a key producer group will not turn on the spigots too fast in an attempt to reverse initial losses caused by China releasing fuel reserves.
  • In an OPEC+ meeting last Thursday Kuwait and Iraq supported plans to raise oil output by 400,000 barrels per day. This was in response to the U.S.’s request for extra supply to help level off rising prices.
  • China released a rare statement that they would be releasing gas and diesel reserves in an effort to boost market supply and stabilize prices. The statement was released after media reports that there was a tight diesel supply and queues at petrol stations in several provinces in recent weeks.

Crude oil prices have been relatively high through most of 2021, but by the end of October, prices were at their highest since 2014. Rising crude oil prices in the beginning of 2021 contributed to an increase in WTI futures and contracts held by money managers. Total contracts held has increased by 61,000 from August 17th to October 26th. This increase in open interest correlates directly with increasing global crude oil prices. From mid-September to end of October, futures prices increased 22%.

eia graph of inflation expectations and WTI crude oil price
Credit: U.S. Energy Information Administration (https://www.eia.gov/petroleum/weekly/index.php)

 

October was slightly warmer than expected which helped alleviate initial heating demand.  If October was cooler, the weather was expected to exacerbate the already severely low supply storage of propane and other refined products.  Energy contracts are now at levels not seen since 2010-2015, which was the higher end of the range from the Global Financial Crisis recovery that started in 2009.  OPEC+ has declared that threats to oil and energy recovery is fragile.  They have committed to higher prices through reduced supply to the global market. With gasoline prices at the pump and retail level approaching over $4 gallon, DC has recently declared that this level is where consumers are no longer price agnostic, which in part is a threat to the Covid recovery.  Proposed solutions albeit temporary, are to release crude oil storage from the US Strategic Petroleum Reserves (SPR), along with other countries around the world.  The market views this solution as temporary, as the SPR cannot fix structural issues of underinvestment and rising demand.

Action Advice:

Consensus is that any downward price shocks from headlines on SPR releases will be absorbed and not a long-term trend reversal. Further winter demand and cold weather can potentially cause severe price volatility, in part like we saw last year with abnormally cold weather in regions of the world. We advise noting that upward price spike risks are still major factors heading in late fall/winter. Please review your prompt supply balance and budget with your Shipley representative to further discuss solutions.

october pricing chart

 

Disclaimer: These market updates are 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.

Nov 4, 2021
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