Energy Market Update: February 2024 Recap

The Shipley Energy Commercial Solutions Team is excited to share the January Energy Market Update to inform you of trends, weather, and other factors impacting the energy market. Read the January 2024 energy market update here.

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Natural Gas Market Update

The March 2024 NYMEX Natural Gas contract expired at a price of $1.615/mmbtu. The March 2024 settlement is the 11th time in the last 12 months that the NG NYMEX has settled below $3. During the period of August 2021 through January 2023, every NG NYMEX settle was at least $4 and reached as high as $9 in September 2022. NYMEX prices during that period skyrocketed based on concerns of supply chain disruptions and global gas shortages. The March 2024 NYMEX settlement is the lowest monthly expiration price since July 2020, due to mild weather and storage inventories.

Current levels of available natural gas in underground storage are now holding steady above prior year and 5-year average levels for this point in winter. As of last week’s report (week ending 3/1/2024), the U.S Energy Information Administration is showing levels of gas in storage that are 11.7% above last year and 26.5% above the average of the past 5 winters.

Another factor impacting the natural gas market is the state of gas production. Last week Chesapeake Energy, one of the largest gas producers in the United States, announced plans to cut the amount of fuel they are planning to produce in 2024 by approximately 30%. Natural Gas market price levels are currently near the lowest levels in over three years which prompted the production decrease from Chesapeake which stated that the gas market is “clearly oversupplied.” Market prices rallied following the announcement of less planned gas production for 2024. Should any additional gas producers follow Chesapeake in making production cuts, market prices could rise further from current levels.

Current Factors Impacting the Natural Gas Markets:

  • Above average levels of gas available in storage
  • Potential for more natural gas producers to cut productions levels following Chesapeake Energy’s 30% reduction

Action Advice:
With natural gas market prices near 3-year price lows, now is the right time to lock in a fixed rate for your natural gas. Act now to lock in low fixed natural gas supply rates for the next 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.

March 2024 Natural Gas NYMEX Settlement Price: $1.615/mmbtu

Last month: February 2024 Natural Gas NYMEX Settlement Price: $2.490/mmbtu

Last year: March 2023 Natural Gas NYMEX Settlement Price:: $2.451/mmbtu

Electricity Market Update

February carved out new lows before “bouncing back” on market news that drove prices all the way up to a new 30-month low for monthly closes. The PPL forward 12-month curve set a new three-year low, but after a producer announced production cutback plans in reaction to low prices, the rest of the month saw prices come back “up” to 3.80 – a 3.3% jump in only a few days, but still the lowest end-of-month price since 2021.

Major outlets predicted a bitterly cold second half of February, which instead turned out to be an early visit from Spring. This resulted in the “it wasn’t as bad as expected” winter dip predicted last month. Buyers should take yes for an answer if they still have any unhedged 2024 positions. A 2025 premium of nearly a full penny is proving to be a harder pill to swallow, especially for some customers who last placed hedges in 2021. Don’t sleep on this opportunity, though – we may not see a buying environment this strong for some time.

As the focus is so often on these 3-4 cent energy rates, it’s important to remember that a complete electricity supply price must include Capacity, Ancillaries, and (in PA and other states) Transmission. Capacity has suppliers nervous right now, leading to higher premiums for Capacity since they have to guess what the cost might end up being..Capacity is determined by a PJM auction which historically takes place three years before a planning year; but in this case, we won’t know Capacity prices for after 5/31/2025 until mid-July of this year. That makes it very difficult to sign a fixed all-in rate of even 18 months that won’t be subject to significant change later. The simplest way to avoid supplier “fear” premiums is to lock in a price which passes through Capacity at cost. (And if you’re in PA, pass through Transmission, as well.) It may be difficult to compare your current 8-cent fixed all-in price to a 6.6-cent Cap & Trans pass-thru price, but your account manager can help explain the budgetary impacts and why it’s the best option in the end. In a Capacity market this uncertain, “fixed all-in” won’t be a very seriously regarded phrase for a while.

Action Advice:

  • If you’re an April, May, or June start – or, heaven forbid, post contract – do not punch the clock this evening without requesting a refresh with the intention of locking in at least 12 months ASAP. You can’t ask for a softer landing.
  • If you’re a July-November start and last locked in post November 2021, you have quite a gift waiting for you. Short terms (6 to 12 months) make the most sense.
  • If you’re a July-November start and last locked in during the first 18 months or so of Covid, it may be time to adjust either expectations or strategy. You can accept that the days of early Covid are gone and today’s rates are still better than they’ve been in years, or you can take on extra risk to potentially “beat the system.”
  • If you’re a December start or later, 2025 rates are trading at too heavy a premium to 2024 and the best move is to wait and ask your account manager to watch for a dip in prices that you can lock in on.

Petroleum & Refined Products

Distillates prices end month flat after first half rally. Gasoline and crude edge higher

Make no mistake, in today’s markets hyper fast algorithmic trading has been generating most of the futures volume for years and continues to gain market share. As a result, increased price volatility is here to stay. Our resources and expertise will continue to help you navigate.

HO futures peaked at 2.9735 after key inflation CPI data on 2/9/2024, a 4-month and 2024 year high, which was 30cpg higher seen just 7 days earlier. The inflation CPI data (excludes food and energy) was slightly higher than expected which started a 37cpg slide the balance of the month. The immediate reaction was interpreted that the Fed would have to postpone interest rate cuts, thus hampering a recovery in manufacturing. WTI crude and RBOB gasoline faired more positively as their immediate exposure to inflation metrics aren’t as correlated.

The sustained cold weather in February never materialized, which also played a part in unseasonal EIA storage builds. Refinery maintenance, unplanned outages, and consistent exports helped offset the decreased weather-related distillate demand. Although WTI reported sizeable inventory builds, global market inventory risk premium was viewed as too low, and the bearish supply-glut sentiment started to wane as market participants turned their attention to March, a seasonable strong month for crude. Propane took different cues in February, with very healthy inventory draws and exports.

The LPG market Mont Belvieu propane saw prices firmly above $0.90, which marked over a 1-year high dating back to October 2022. The market spent all of 2023 working off excess inventory due in part to 10-year record prices in 2021, contracting global economies (lower polypropylene demand) and above average warm winter.

Action Advice:

  • Our focus firmly turns to March seasonality, where we are expecting customers to take advantage of next winter’s 2024 – 2025 seasonal price structure strip weakness, prior to the seasonal gasoline and crude demand bump. Fixed price strips have typically been favorable to lock 2nd half of March into early April. Our advisors will be in contact with market perspective and feedback to help you navigate the seasonal shift.

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.

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