Our Shipley Energy Commercial Solutions Team is excited to share with you the February Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read lasts months energy market update here.
Skip to:
Natural Gas Update
Electricity Update
Petroleum Update
The March 2023 NYMEX Natural Gas contract expired at a price of $2.451/mmbtu. This is the lowest NYMEX settlement price since October 2020 ($2.101). Warmer than normal weather for much of the country during January and February has driven down natural gas market prices based on reduced heating demand.
The prompt NYMEX contract of April 2023 is currently trading in the $2.55-$2.65 range at the time of writing. Unseasonably warm temperatures in the U.S. throughout winter has brought the levels of natural gas in underground storage in line with the 5-year average level for this time of year. Fears of supply shortages in the U.S. and Europe have been largely abated given the warmer than anticipated winter weather and ample supply available in storage.
The Freeport LNG (liquified natural gas) facility in Texas, which has been offline since June 2022, has received approval from the Federal Energy Regulatory Commission (FERC) for a partial restart of operations. When in operation the Freeport facility sends 2 BCF (billion cubic feet) per day of natural gas to ports in Europe and Asia. Expectations are that it will take several more weeks for Freeport to return to full operating capacity. There will be less gas available domestically to meet demands once Freeport returns to full capacity which may result in higher prices in the NYMEX market.
With NYMEX natural gas market prices down near 2-year lows, it is an excellent time to look to lock-in fixed natural gas supply rates. With Freeport LNG returning to full operation in the coming weeks, there is the potential for price spikes in the NYMEX market once that export gas is no longer available to meet domestic demand.
Additional 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.
March 2023 Natural Gas NYMEX Settlement Price: $2.451/mmbtu
Last month: February 2023 Natural Gas NYMEX Settlement Price: $3.109/mmbtu
Last year: March 2022 Natural Gas NYMEX Settlement Price: $4.568/mmbtu
The downward trend of electricity continued in February as its primary input, natural gas, settled at its lowest monthly close since October 2020. The balance of 2023 saw PJM West Hub power prices drop another 4% to 4.06 cents per kWh. (These prices are energy only and do not equate to a complete delivered supply price.) That is only a hair away from half of the 8.11-cent price that calendar-2023 was trading at heading into the winter. The 12-month strip, which loops in the relatively expensive January and February 2024, is still trading at an attractive 4.65 cents.
This is to be expected after “The Winter That Wasn’t”. We all made memories over the last two months that likely look more like grilling and tossing a Frisbee than sleigh riding and warming our feet by the fire. The European energy crisis that has driven so much of our narrative for over a year essentially has hit pause–their natural gas storage is roughly 50% higher than where they’d normally find themselves this time of year. Domestically, we’re well above the five-year average for natural gas storage and only spring weather can be seen on the horizon. The Freeport LNG facility is slowly ramping back up but the market effect of the extra 2 billion cubic feet being exported daily has been tepid thus far. It all paints a picture of a market that has just completed a massive downhill slide and is wading comfortably in 70-degree waters.
Of course, power (market) abhors a vacuum, and this means that any news will be big news. As weather varies a little, expect the market to overreact each time: the unexpected 28-degree day in March should affect 2025 prices. Be on the lookout for two things:
What may look like a calm market is actually the bottom of a three-month drop in search of volatility. 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.
February continued January’s warm weather trend and inflation proves to be sticky.
Distillate demand slump has continued through February. Unseasonably warm weather accelerated seasonal downward pressure on basis and prices, as suppliers and marketers were faced with shedding excess length as winter supply shortage risks have waned. Distillate demand is also heavily driven by economic production activity, manufacturing, and freight transportation. The current manufacturing cycle has been contracting, resulting in a modest rise in distillate inventories over the past few months, but U.S. distillates supplies are still +10% below the prior 10-year average for February.
Further, distillate stocks around the world still remain below 10-year averages as well. Near term, while many domestic refineries were in maintenance turnaround during the month, warm weather in the US and in Europe significantly masked any potential price spikes due to overall low inventories.
As the market turns toward spring and summer driving season, gasoline and jet fuel demand will rise with seasonality, but prices will remain reactive to the overall state of the economy and the Fed’s actions.
Inflationary data has kept petroleum prices rangebound. February marked a turnaround in inflation metrics and key data releases. Overall low unemployment rates, higher wages, skilled workers and eligible driver shortages, higher consumer and deficit spending have resulted sticky inflation. This data in part points to a less accommodative Fed who will use every tool that they can to get inflation back down to their target rate of 2%–a very tall order. As a result, the US Dollar index ($DXY) has rallied 5% putting downward pressure WTI crude oil and refined product prices. If global manufacturing does turn around and rise, this would put a floor under petroleum prices. We could again expect increased price volatility and steeper market structure backwardation, given how low global distillate stocks are coupled with minimal spare refining capacity.
For inflation not to reignite, distillate supplies would need to be much healthier and near the 10-year average. This appears to not be the case as global petroleum demand is set to rise, as China continues to reopen its economy, for example. Currently distillate supplies are at the lowest levels (-12%) compared to the end of the last 3 recessions dating back to 2001. The Fed needs to continue to tighten and stagnant economic growth to avoid a resurrection of energy inflationary pressures.
MAR WTI (CL) below 76.50 – above 79.50 and 82.60
MAR ULSD (HO) below 3.00 2.93, 2.78 – above 3.14, 3.28, 3.43
MAR RBOB (RB) below 2.52, 2.46, 2.31 – above 2.60, 2.71
Near term energy markets are to remain rangebound as inflationary data continues to anticipate a more hawkish Federal Reserve and strong dollar. Interest rate projections are projected to steadily rise throughout the coming months, albeit at a possibly slower pace. Traditionally, February is a great time to review locking in budgeted or anticipated demand. Current basis and outright prices have been at 12-month lows, and we feel it is prudent to review any forward demand. If prices trade and are accepted above the following, we would change our technical rangebound thesis:
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.
