Energy Market Update: January 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 December 2023 energy market update here.

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Natural Gas Market Update

The February 2024 NYMEX Natural Gas contract expired at a price of $2.490/MMBtu. The February 2024 settlement is the 11th time in the last 12 months that the Natural Gas NYMEX has settled below $3. During the period of August 2021 through January 2023, every Natural Gas 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. Closer to average winter temperatures along with ample supplies of natural gas in storage and in active production have led to prices returning to the sub-$3 level over the past year.

Current levels of available natural gas in underground storage are now almost exactly in line with the prior year’s level for this point in winter. The EIA Natural Gas Storage report from two weeks ago showed a single week withdrawal of 326 bcf (billion cubic feet), by far the largest single week withdrawal of this winter to date and one of the largest withdrawals of the past several years. Frigid temperatures across most of the country over Martin Luther King, Jr. Day weekend drove major heating demand and resulted in the significant depletion of the storage surplus. As of last week’s report, the U.S Energy Information Administration is showing levels of gas in storage that are 2.07% above last year and 5% above the average of the past 5 winters. With storage levels now closer in line to average seasonal level, any further cold snaps throughout the winter cold put upward pressure on NG market prices with less available storage supply.

Current weather reports are showing the potential for a return to temperatures closer to those seen in the mid-January cold snap on the horizon for the last two weeks of February and potentially lingering into March. Meteorologists are closely watching the continuously developing situation with the polar vortex and the potential for colder air being forced down from the Arctic and settling over the Eastern U.S. and Canada. That scenario would prompt similarly heavy withdrawals from underground storage to meet increased heating demand and could send NG market prices climbing depending on the severity and length of the cold snap.

Current Factors Impacting the Natural Gas Markets:

  • High storage withdraws in January reducing natural gas storage levels to be in line with prior year and 5-year averages
  • Weather models showing a potential for the return of more frigid temperatures for the end of February

Action Advice:
With cold weather on the horizon again, now is the right time to lock in a fixed rate for your natural gas before the freezing temperatures send natural gas markets climbing. 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 versus standard Fixed pricing. Ask your Account Manager for details.

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

Last month: January 2024 Natural Gas NYMEX Settlement Price: $2.619/mmbtu

Last year: February 2023 Natural Gas NYMEX Settlement Price: $3.109/mmbtu

Electricity Market Update

The PPL forward 12-month curve moved from 3.92 to 3.98 cents per kWh. The anticipation of mid-January cold caused the market to surge temporarily before easing off. The current price is a fair distance from the December 12th lows.

February is predicted to start warm and then take a hard turn toward the cold side for the last three weeks. Only an extreme overreaction to that warmth could justify chasing the recent lows; otherwise, the market is likely to run up right until the coldest day actually comes. It’s fair to expect at least one more substantive dip before spring, but when that could come is anyone’s guess. The wise market outlook continues to observe that long-term fundamentals are extremely bullish – sooner than any of us would like, domestic supply will not be able to keep up with demand. It is only the short-term factors, driven by weather and flashy headlines, that have a reasonable chance of pulling the market down. If that is what you are relying on, it is best to set that expectation clearly with your account manager ahead of time, so you do not miss an opportunity.

It’s also worth remembering this time of year, as the grid rages through peak hourly rates, that the cheapest kilowatt hour is the one you do not use. If you are one of the many who last investigated lighting and efficiency upgrades in 2013, it’s time to revisit. Our team would be happy to consult with you on the best options to pursue.

Action Advice:

  • If you are a March or April 2024 start and are somehow still waiting for your moment, get it done. You have defied every odd except December 12th – do not let chasing that dip cost you a very low price for the next 1-3 years.
  • If your renewal is any time after April and you prefer to lock everything at once, once again the “wait and see” approach is justifiable. You still have time to capture one more “it wasn’t as bad as we expected” winter dip.
  • If your renewal is anywhere between May ‘24 and August ’25 and you are open to a portfolio approach (lock in the good months, let the high ones ride till later), reach out this week to get a hedge workbook put together and a meeting scheduled with your account manager. The layered approach, as with most diversified portfolios, is typically the most responsible and beneficial in the long run.

Petroleum & Refined Products

Crude oil and refined products rally as major economic global markets decouple and middle east geopolitical tensions soar

  • Hostility in the middle east Red Sea ratchets up as the Israel Hamas war continues and Iran backed Houthis continue to attack vessels transited the Suez Canal
    • A closure of Middle East choke points, the Suez Canal and or Straight of Hormuz would cause a significant spike in prices, estimated in upwards of 20% $10-15 per bbl of crude and possibly $0.40 – 0.50 cents per gallon ULSD and Rbob.
  • China’s economic growth continues to swoon with attempts to stabilize the economy as foreign investment continues to falter in large part due to crumbling corporate real estate
    • As the world’s second largest crude oil importer, China’s economy continues to contract helping curb upside price momentum as demand wavers
  • US economy continues to brighten as the Federal Reserve “soft-landing” projections seem feasible, manufacturing data (which is tied closely to diesel demand) is expanding as the recovery endures
    • Inflation continues to fall but appears to be stabilizing.
    • Federal Reserve is not cutting interests rates until at least Q2 2024, which is causing a repricing of bond yields and USD $ strength
  • January temperatures proved to be cooler than last January, which helped increase heating oil demand
  • US Midwest seasonal demand slows as gasoline and diesel cash markets stumble

January saw market participants adding to bullish positions as geopolitical unrest remained high, OPEC committed to further oil production cuts, and economic data pointed to a continued recovery from record high inflation. Refined product demand is set to remain healthy, which could be shaping up for another price run into the second half of winter and early spring. We concur that strong support for flat price WTI crude remains in the low $70 per bbl range, equating to $2.50 ULSD and $2.00 Rbob futures. Winter distillate demand is expected to remain healthy into February with higher conviction that cold air is set to descend upon the Northeast in late February, supporting heating oil cash markets. 2024 gasoline demand is projected to remain healthy and eclipse pre-Covid 2019 and 2023 highs as we make the turn into the summer gasoline spec next month.

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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