The Shipley Energy Commercial Solutions Team is excited to share the November Energy Market Update to inform you of trends, weather, and other factors impacting the energy market. Read the November 2023 energy market update here.
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The January 2024 NYMEX Natural Gas contract expired at a price of $2.619/MMBtu, down 55% from last year’s January settlement price of $4.709/MMBtu. The January 2024 settlement is the 10th time in the last 12 months that the NYMEX has settled below $3. During the period of August 2021 through January 2023, every NYMEX settle was at least $4 and reached as high as $9. NYMEX prices during that period skyrocketed based on concerns of supply chain disruptions and global gas shortages.
As we enter the new year, natural gas placed in underground storage will continue to be withdrawn to meet increased heating demands nationwide. Current levels of available gas in storage remain above average for this time of year. As of last week’s report, the U.S Energy Information Administration is showing levels of gas in storage that are 9.9% above last year and 9% above the average of the past 5 winters. With gas in storage above historical average levels there is low concern about the ability to meet increased heating demands domestically when the coldest days of the year arrive.
Following one of the warmest Decembers ever recorded, there is the expectation for the arrival of cold weather starting in January. Meteorologists are closely watching the situation developing around the polar vortex. Weather models are indicating that starting in early to mid-January, there is the chance for a sudden warming in the stratosphere which would disrupt and weaken the polar vortex and send cold air spreading down into Canada and the Northern United States. If the forecast in these models hold true, we may be in for significantly colder weather in January and February. With these cold weather developments on the horizon, now is the right time to make sure your natural gas supply is locked in at a low fixed rate.
Current Factors Impacting the Natural Gas Markets:
Action Advice:
Now is the time to lock in fixed natural gas rates for the next 12 months before the coldest days of the winter arrive and send natural gas markets climbing. Act now to lock-in low fixed natural gas supply rates for the next 6-12 months!
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.
January 2024 Natural Gas NYMEX Settlement Price: $2.619/mmbtu
Last month: December 2023 Natural Gas NYMEX Settlement Price: $2.706/mmbtu
Last year: January 2023 Natural Gas NYMEX Settlement Price: $4.709/mmbtu
December continued the unexpected downslide of November. The PPL forward 12-month curve dropped another 3.6% from 4.07 to 3.92 cents per kWh, posting the lowest monthly numbers since 2021 while briefly dropping even lower the week of December 11th. The anticipated warm December didn’t disappoint, and the market kept reacting as it became clear it would be the second-warmest on record. It still made customers who took the plunge in November look pretty smart for having done so, but any unhedged 2024 positions continue to be rewarded in this falling market. January weather is not expected to follow the mild and temperate example set by December; the consensus is for January heating degree days to be higher than the average of the last decade by no small measure.
Though it may be counterintuitive, winter has proven to be the best time to buy in PJM for 9 out of the last 10 years. This generally indicates that fears of shortages going into winter create natural gas and electricity forward prices that are artificially propped up and then look ridiculously high once actual winter arrives. But also bear in mind that this fear is not unfounded, and winter only looks overpriced until the weather changes; by then it’s too late to respond. The days of extreme weather events like the 2014 Polar Vortex, the 2021 Texas freeze, and last year’s Christmas Eve cold blackouts aren’t far behind us – and it only takes about two weeks of extreme weather to turned unhedged kilowatt hours into 25-cent kilowatt hours.
It’s unlikely that we’ve seen the true bottom of this winter already, but it’s also extremely difficult to perfectly time the bottom. The most strategic and responsible way to buy is to find forward months that fit nicely under your budget and make multiple layered hedges over time. This is how we keep perfect from being the enemy of good and (possibly) the first truly cold winter month in almost two years from stranding us with only terrible price options. That being said, if your preference is to do a 2-3 year fixed all-in lock at just the right time, it may be beneficial to wait a month and see what winter really does.
Action Advice:
For the first time since the 2020 pandemic energy futures contracts finished the year lower by roughly 11%. Heating oil (HO) prices in December finished near 4-month lows but $0.40 higher than the $2.15 low seen in May. The monotonous, repetitive, recessionary market undertones help keep a lid on distillate prices as overall supply shortages of the past couple years have come to pass. The major driver of energy prices hinged on the crude “over supply” narrative, coupled with an overall lack of demand mainly driven by faltering and contracting economies in Asia/China and Europe. China was a major driving factor in lower crude oil demand, as they are the largest importing nation in the world. The record high prices of 2022 severely strained economies around the world with record high inflation in 2023. After energy prices peaked late last summer, falling CPI/PPI inflation data ensued.
To the contrary, final IEA data showed that 2023 global gasoline demand of 26.9 million barrels per day exceeded the pre-pandemic highs in 2019. This data is in direct contrast to the narrative of weakening travel demand due to less daily commuting, weaker global industrial output, strong US dollar, and EVs. We are expecting gasoline demand to remain strong into 2024, although the initial data could point to the contrary, similarly to what we saw in 2023.
By December, Northeast refining capacity all came back online after turn-around maintenance and pipeline delays, helping alleviate distillate rack basis, which had jumped $0.10 – $0.20 premium over NYMEX futures. The gasoline rack basis also saw a jump but not near the levels of distillate. El Niño has delayed the onset of colder winter temperatures as the Northeast remains somewhat mild with limited cold temps in the forecast. Last year heating oil demand was lackluster all heating season. While we aren’t expecting a repeat this winter, we did see less than average heating degree days in December.
2024 is expected to be another banner year for US crude oil production, which currently sits at all-time record production levels of 13-14 million barrels per day, exceeding the shale boom of the mid 2010’s which peaked February 2020 at the start of the pandemic. Although rig counts continue to decline, this could result in an intermittent peak in US oil production in the new year. We expect OPEC to continue to lose its grip around controlling the global price of crude oil with their current agreed upon lower production quotas. Angola recently agreed to leave OPEC to release themselves from quotas. OPEC is expecting to increase production in March, but if prices and demand remain stagnant, OPEC could continue their +2 million barrels/day production cuts beyond March.
Geopolitics and a US Presidential election are set to have an impact on prices in 2024. Gasoline prices at the pump are a “kitchen table” issue, and always remain in focus during a presidential election year. January 2023 US gasoline average price was $3.20 and close to $0.10 lower at time of writing. Washington wants prices to remain as low as possible at the pump while other energy producing economies want prices higher. The world is not short of geopolitical conflicts with the war in Ukraine continuing while Russia has (loose) sanctions on their energy production. Israel and Hamas conflict continues without resolution. The Red Sea’s Suez Canal could be choked off at the Strait of Hormuz which is the most important oil passage in the middle east.
Overall, we are expecting bouts of volatility in the oil and refined products market in 2024 and expecting crude oil to trade between $65-95 per bbl. A not-much-talked-about downside tail risk is that Saudi Arabia and OPEC could agree to flush the market and awash it with a sharp production increase. This would be counterintuitive to their current goals of supporting prices through constrained production, but if OPEC continues to lose market share, they could flush the market like they have done twice in the past 10 years, which ultimately sent prices to all-time lows.
Please 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.
