The Shipley Energy Commercial Solutions Team is excited to share with you the August Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read last month’s energy market update here.
Skip to:
Natural Gas Update
Electricity Update
Petroleum Update
The September 2023 NYMEX Natural Gas contract expired at a price of $2.556/mmbtu. This is the lowest settlement price for a September NYMEX contract since 2019 ($2.251) and is down over 72% from last year’s historically high September settlement price of $9.353/mmbtu. The September settlement price continues a months-long trend of NYMEX prices settling at or below $2.60. The average settlement price for March through September of last year was a staggering $7.24.
Consistent market conditions for natural gas have been strong levels of natural gas in storage for winter and more than enough available production to meet current demands. The level of gas available in underground storage is currently 17% higher than last year at this time and nearly 8% higher than the 5-year average.
While still comfortably ahead of prior year average levels, the amount of gas in underground storage has come down in recent weeks as very high summer temperatures across the country drive up air-conditioning use and electricity demand.
As of 2022, nearly 40% of all the electricity generated in the U.S. comes from power plants using natural gas for fuel. With summer temperatures climbing higher every year the levels of power burn and associated summer natural gas consumption are likely to continue to climb in unison. This will be a trend to continue to watch as summer moves into early fall. The level of natural gas in storage available for winter by the time we reach mid to late October will go a long way in either elevating or dismissing concerns of gas supply shortages during the coldest days of the year.
While the NYMEX prices in the shorter term (the next 6-12 months) remain at multi-year lows, market prices for each month in calendar year 2024 currently sit above $3.00 while winter months in 2025 are upwards of $4.00. These higher prices further out reflect the anticipation for higher priced gas in future years as the U.S. continues to export more and more liquified natural gas (LNG) to countries around the world, making natural a more valuable and in-demand global commodity.
Action Advice:
The NYMEX natural gas market has hovered consistently around the $2.00-$2.60 range in recent months, consistently reaching price levels not seen since the peak of the pandemic. Act now to lock-in low fixed natural gas supply rates for the next 6-12 months for the lowest current price offers.
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.
September 2023 Natural Gas NYMEX Settlement Price: $2.556/mmbtu
Last month: August 2023 Natural Gas NYMEX Settlement Price: $2.492/mmbtu
Last year: September 2022 Natural Gas NYMEX Settlement Price: $9.353/mmbtu
August continued a meandering forward curve pattern while quietly moving up 3/10ths of a cent. The PJM forward 12-month curve at the PPL zone increased from 4.26 to 4.57 cents per kWh as natural gas staked its claim on the upper half of the 2’s for most of the month.
This could be seen as good news for the bears, theorizing that if we can get through this record-breaking summer and the only clear pattern on the other side is “meandering to slightly up,” then obviously the market has a bias towards down. If that’s true then the first truly moderate sign of shoulder-season weather should be all the excuse we need to tank the market 10% in two days.
But where does the sweltering heat that followed Labor Day fit into that equation? And bear in mind that whether or not the short-term late-summer dip arrives, big-picture market factors still strongly favor the bulls. The war rages on 18 months later, the European energy picture isn’t that much less desperate than last year when we all lucked into no winter, two new LNG facilities are projected to come online in 2024 adding offshore demand, and a recent PJM whitepaper painted a bleak picture of a not-too-distant future where there’s simply not enough generation available to meet the need.
With that in mind, the primary audience at this point is those large users who have been waiting to lock in 2024: the December 2023 starts have 70 days or less, the January 2024 starts 100 days or less. We are officially approaching the “price taker” window and any hope of finding the perfect moment to lock in the entire load at once at anything resembling an early-Covid rate is fleeting at best. The hashmark is already in the win column because it’s no longer the terrible market of 2022. Get it done and move on before winter arrives early and the bullish factors are all the market can see.
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.
As we noted in last month’s note Tailwinds Swirling for Higher Prices ULSD HO futures have rallied $0.35, a 10% move higher. We continue to reiterate last month’s themes and believe the story for higher prices, namely distillate prices remains intact and to outperform. Distillate stocks remain substantially below 5-year average thresholds coming into heating season. Last year saw above average temperatures which we do not expect to be as mild.
OPEC has continued to curtail crude oil production through the balance of 2023 of -1.7 million barrels per day. During a time of sticky inflation, cutting crude oil production increases geopolitical tensions as global economies struggle for economic growth. With these significant cuts, and continued weekly crude oil inventory draws, banking analysts expect Brent to trade into the $100-110 per barrel range within the next 4 months. This could put front month ULSD HO futures above $4 again.
Shuttered refining capacity over the past few years has given way to supply and demand shocks and bottlenecks, which has a volatile impact on fuel prices. Underinvestment in the refining and petroleum sectors of the last few years with Covid being the impetus to shutter refineries that were consistently underperforming with costly maintenance and poor margins. That refining capacity is sorely needed, and it is just not coming back in its traditional form. Some capacity is coming back in the form of renewable projects, mainly renewable diesel. These projects take significant planning and time to come online and need regulatory assistance in the form of credits to make them financially viable.
Gasoline demand continues to struggle compared to pre-covid 2019 metrics. The “summer driving season” seasonality demand boom may be of the past with people overall driving less, coupled with more fuel-efficient vehicles. One item to note is the EIA has significantly revised gasoline demand higher for previous data releases.
The US Dollar (ticker $DXY) has strengthened on stronger economic data which is implying the Federal Reserve may raise interest rates 25bps in the upcoming FOMC meeting. The push-pull of a strengthening economy with tighter monetary policy has yet to dampen economic activity, overall employment rate, and the U.S. consumer. This bodes well for distillate demand, while retail gasoline prices remain well below last year at this time. Given crude oil and refined products are priced in USD, a stronger dollar typically has an opposite correlation on prices and vice versa.
Speculators continue piling into overall long position in energy futures according to the latest Commitment of Traders weekly data. The most bearish theme has continued to be China and its economic struggles. China has attempted to stimulate its economy in order to stave off falling GDP flanked with ballooning infrastructure and property debt. Energy prices should not eclipse 2022 highs but can certainly become significantly elevated in the current global economic environment. Overall energy demand out of China will lower and follow suit of its GDP outlook. China, the largest consumer of energy in the world, has an indirect impact on the prices we see here in the US.
Distillate seasonality is here. Backwardation market structure for HO ULSD and RB gasoline futures (Oct/Nov) is now ~$0.08 which is the 2022 Russia Ukraine territory. The market is indicating that refined product inventory stocks are tight and will remain so into the fall with 2 major east coast refineries in maintenance turnaround. We expect inventories to remain somewhat tight into the fall as cooler temperatures move in. If you have any remaining pre-buy or cap volume that needs to be backed we urge to strongly consider fixing this volume before heating demand starts displacing further distillate stocks on the east coast.
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.
