The Shipley Energy Commercial Solutions Team is excited to share with you the June Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read last month’s energy market update here.
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Natural Gas Update
Electricity Update
Petroleum Update
The July 2023 NYMEX Natural Gas contract expired at a price of $2.603/mmbtu. This is the lowest settlement price for a July NYMEX contract since 2020 ($1.495) and is down 60% from last year’s July settlement price ($6.551). Nymex natural gas prices have reached near 2020 level price lows recently due to warm weather and low heating demand.
Hot summer temperatures across most of the country in June and July have prompted steady drops in the level of natural gas demand for heating. This low demand is what has allowed Nymex market pricing to reach 2020 level price lows in recent months. Things may change however as temperatures continue to climb during the peak of summer with households and businesses across the U.S. cranking up the air conditioners.
As of 2022, 40% of the electricity generated within the United States was produced at facilities fueled by natural gas. This increased summer demand for natural gas to fuel power generation could spark a rise in Nymex pricing.
Contributing to the current downward pressure on the Nymex market is the current level of gas available in underground storage for use in winter. The level of gas available in underground storage is currently 25% higher than last year at this time and 15% higher than the 5-year average for this time of year. With ample gas in storage, there is lower concern for supply shortages during peak winter months.
Action Advice:
With continued low demand and strong levels of gas in winter storage, the NYMEX natural gas market has hovered consistently around the $2.50-$3 range in recent months. Act now to lock-in low fixed natural gas supply rates for the next 6-12 months before peak summer heat drives up demand for natural gas to fuel power generation.
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.
July 2023 Natural Gas NYMEX Settlement Price: $2.603/mmbtu
Last month: June 2023 Natural Gas NYMEX Settlement Price: $2.181/mmbtu
Last year: July 2022 Natural Gas NYMEX Settlement Price: $6.551/mmbtu
June rewarded the patient. The 12-month forward PPL curve is trading at 4.38 cents per kWh, down from last month’s 4.55, despite the prompt natural gas price leaping from the $2.20 range to being consistently above $2.50. This paints a picture of short-term increases more than offset by 2024 opportunities. January 2024 broke 7 cents for the first time since becoming relevant and is now trading at 6.86 cents per kWh. Since January tends to lead the year in pricing and ruin the party for anyone enticed by spring prices in the low 3’s, it is an important indicator of whether there’s a true fixed-price opportunity. (Friendly, frequent reminder: this 4.38 cents is energy only. While it makes up most of an all-in fixed price, several components must be added to arrive at all-in fixed.)
How good is a January under 7 cents? Let us look at some comparisons:
At this point customers looking to lock in all of 2024/25 at once seem to fall into two camps. The first camp is those lucky enough to just now be rolling off their early-Covid prices; they seem relieved, like they waited out the 2022 storm and can take these mitigated increases after all the scary news they have heard. The second camp is those whose early-Covid contracts expired last year and who had to take their higher-priced licks to fix 2023. These customers are more reticent to lock in, seemingly because they feel they already paid their premium and are now “due” their pre-Covid rate (also known as their lowest price ever) once again. And while patience has been rewarded thus far, there are no market indicators to point to a return to $1.50 natural gas prices and a 12-month curve of 2.65 cents.
The war rages on, Europe still faces massive energy uncertainty, we are adding about 2 billion cubic feet per day of LNG each year which cannibalizes domestic supply, the average two-meter surface temperature of the Earth reached an all-time high three days in a row in early July, and the recession hasn’t shown up in the way all the experts had promised. If you are longing for the days of March 13th, 2020, you may want to ask yourself how realistic that really is.
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.
It’s All About Demand.
It is peak driving season. U.S. gasoline demand, measured during the final week of June, rises to the highest level since October 2021. Demand coming into July 4th is typically a high watermark for gasoline. For perspective, comparing to the same week in 2022, gasoline demand increased ~59M gallons (1.4M barrels). Travelers are steadily increasing their mobility, potentially slightly offset by a less robust economy and higher interest rate environment hitting consumers. To note, overall gasoline futures prices for month ending June 30 expired at $2.6340/gallon, compared to June 2022 record all-time-high set on 6/6/22 at $4.3260/gal.
Distillate demand has seen a slight increase, rounding out June with the first overall inventory draw in 5 weeks. Demand popped to 500k barrels per day but sagged 5% overall compared with this data to the year prior. Overall domestic distillate stocks are -20M barrels below the 5-year average. Without a sizeable increase in inventory stocks, we can expect periods of volatility, most of which we expect to show up in the front spread.
Crude oil demand is a different story. The main key drivers are:
Propane price curve is flat through next year as domestic stocks remain ample coming out of warm winter, while plastic and chemical production remain lower in the current global economic environment.
Forward distillate prices remain clearly in our focus. Key support price areas we are focused on 2.40, 2.22, 2.15, 2.00. In the interim we feel the distillate market has put in a seasonal bottom as the focus begins to shift to the cooler months. The winter strip [calendar Oct23-Apr24] is now 11 cents backwardated (2.53 Oct vs 2.42 Apr). In May the curve was flat, where we described potential opportunities to start locking in strips, as it was in our view overly pricing in a steeper recession reflected lower demand. At the time of writing the market has since moved away from this thesis pointing to the potential 1-2 punch of increasing demand into the cooler months.
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.
