Our Shipley Energy Commercial Solutions Team is excited to share with you the January Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read lasts months energy market update here.
The February 2023 NYMEX natural gas contract settled at $3.109/mmbtu. This is the lowest NYMEX settlement price since June 2021 ($2.984). Unseasonably warm weather for much of the country since Christmas has prompted sell offs in the natural gas market. This has been based on reduced demand for heating.
The prompt NYMEX contract of March 2023 is currently trading in the $2.70-$2.80 range, down almost 70% from the extreme high prices the market experienced throughout summer 2022. High summer temperatures drove major demand for natural gas to fuel electricity production. This prompted supply shortage concerns for winter based on the lower-than-average levels of available gas in storage.
In the short term, these supply constraint concerns have been put on the back burner in both the U.S. and Europe while temperatures remain warmer than normal.
Looking ahead into the next two weeks, there are forecasts for low temperatures in the 10–20-degree range for the East coast. These low degree days may prompt some rallying in the NYMEX market, as gas demand increases to meet heating needs across the country.
There is also the remaining delay of the return of the Freeport LNG (liquified natural gas) facility in Texas. When in operation, the Freeport facility sends 2 BCF (billion cubic feet) per day of natural gas to ports in Europe and Asia. That gas has been available to meet heating demand and build storage supplies here in the U.S. while the facility has been offline. Freeport has announced that they have completed repairs and are seeking permission for a partial return to operation.
With NYMEX natural gas market prices down almost 70% from the peak prices over the summer, now is a great time to lock in natural gas supply rates. The best value is currently in the near term with 6–12-month pricing coming in the lowest for most customers. Reach out to your Account Manager for refreshed pricing.
Other options include Basis Only or NYMEX Lock deals to separate the two elements of your natural gas supply price – potential value vs standard fixed pricing. Ask your Account Manager for details.
February 2023 Natural Gas NYMEX Settlement Price: $3.109/mmbtu
Last month: January 2023 Natural Gas NYMEX Settlement Price: $4.709/mmbtu
Last year: February 2022 Natural Gas NYMEX Settlement Price: $6.265/mmbtu
After December finally showed up with the long-awaited 2023 drop from 8.11 to 6.41 cents per kWh, January said, “hold my sweaty warm beer,” and dragged the remainder of 2023 (now only 11 months) down another 37% to 4.23 cents per kWh. (These prices are energy only and do not equate to a complete delivered supply price.) This follows suit with natural gas, which saw February close at its lowest monthly settle price since June 2021. January and February 2024 are still a bit overpriced and we’re generally looking at a contango market (where future years are more expensive than 2023), but otherwise, all forward shapes appear to show a market in freefall.
We would caution buyers unhedged for 2023 against staying on this downhill ride for too long, though. The factors that have pulled the market down from 8.11 to 4.23 cents in only two months are very temporary: a 45-degree January; the continued delay of the Freeport LNG facility coming back online; and the Russia-Ukraine conflict failing to make energy-defining headlines, as Europe has also benefitted from the relative warmth. All of these factors can turn on a dime, though.
If your May 2023 renewal is coming up, you don’t want to wait until Freeport is back online fully. When this happens, two billion cubic feet of natural gas is suddenly being shipped to a continent that’s willing to pay five times what the U.S. does for the same product. This buying window has lasted longer than expected, but once Freeport is able to start exporting 2.1 billion cubic feet of gas again, it will have slammed shut. The long-term market still favors the bulls as long as Europe’s energy picture – which was already in trouble before the war – continues to be so desperate.
Make sure you are getting expert advice from a trusted supplier or an advisor that will protect your best interests.
Energy-buying is not a do-it-yourself job. We have experts waiting to help you make the best-informed decision now and down the road. Reach out to your Shipley Energy advisor today to see what the lowest market since 2021 might mean for you.
A new year and a new rally. January’s price action essentially mirrored December, and a petroleum products rally ensued for most of the month. A few major themes we have been observing have emerged and began to take shape over the last couple of months.
We expected that the market has rallied in anticipation of China reopening and Russian refined products ban. Although overall CFTC (Commodity Futures Trading Commission) Commitment of Traders data has shown the market to come into the new year positioned to continue adding to long open interest, we are observing that there is still room to run, barring any significant news to upend the current themes mentioned above. We currently view the market to be in a range–as significant support and resistance in crude oil–ULSD and RBOB have held. We feel for the market to break out above recent highs, a new catalyst will need to present itself and that could come by the way of the Federal Reserve.
The Fed hiked interest rates by 0.25bps on 2/1/23, which marks the lowest increase since early 2022. If Jerome Powell’s press conference comments are perceived dovish, this could potentially fuel an equities rally and a U.S. dollar decline. The Fed does not want to tip their hand and be viewed as the job is done and will likely give hawkish to neutral commentary.
We are closely watching the dollar index 101.50 area for a break below, which could push crude above 82.60 and pull refined products with it. The energy price-to-dollar trade has been tightly correlated, and if the dollar rallies from here, this could spell further weakness as we have seen at month end. To recap, the dollar and bond yields have been falling with inflation. EIA projects an increase in global energy demand over last year, which could negate some weakness in distillate demand due to a global recession.
We expect distillate and gasoline prices to be rangebound in the very near term. The data for the four-day refinery outages across the country will start to be reported next week, which could see some substantial draws in stocks due to production curtailment from the freezing cold temperatures seen at Christmastime. Heating oil futures move above $3.42 brings signals that $3.70-area is possible, and an Rbob move above $2.52 brings the $2.70 200-day moving average back in view.
If you have been contemplating locking in any fixed price product, we are suggesting now is a good time to do so as major support of ~$3.00 – $3.14 for heating oil and $2.00 for Rbob has held.
Shipley Energy will diligently work with our customer base in order to provide council and advice to navigate the current market and supply. 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.