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 February 2024 energy market update here.
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The April 2024 NYMEX Natural Gas contract expired at a price of $1.575/MMBtu. This is the second month the NG Nymex has settled below $2 per MMBTU, following March’s $1.61 settlement. Nymex Natural Gas Settlement prices had not fallen to these current levels since the summer of 2020, when demands and economic output plummeted during the height of the COVID-19 pandemic.
There is the potential for these current sub-$2 settlement prices to continue through the spring and summer as we leave the highest demand months and move to milder weather across most of the country. A major factor to watch as we move toward summer will be the severity of heat across the U.S., which will impact demand for electricity to meet air conditioning needs. Natural gas is a primary source of fuel that power plants use to generate electricity and accounts for about 40 percent of all electricity generation within the United States. Persistent high temperatures during the summer would result in increased demand for natural gas to fuel power burns, which could cause market prices to climb.
As we exit the winter, levels of available natural gas in underground storage are currently well above average. As of last week’s report, the U.S. Energy Information Administration shows levels of gas in storage that are 23 percent above last year and 41 percent above the average of the past five years.
The state of gas production is another factor impacting the natural gas market balance. In February, Chesapeake Energy, one of the largest gas producers in the country, announced plans to cut the amount of fuel they were planning to produce in 2024 by approximately 30 percent. Not long after, EGT Corp., the largest producer of natural gas in the U.S., announced that they would cut their quarterly production output by 5-7 percent throughout March. Natural gas market price levels are currently near the lowest point in over three years, which has prompted a decrease in production from these producers. Chesapeake stated that the gas market is “clearly oversupplied.” Market prices rallied following the announcement of less planned gas production for 2024. This will be an important factor to watch if natural gas demands a spike and less gas is produced to meet those needs.
As we leave winter and natural gas market prices remain near the lowest levels in years, now is a great time to lock in a fixed rate for your natural gas! Call us to get your low-fixed natural gas supply rates for 6-12 months and take advantage of the offers.
Other rate options include Basis Only or NYMEX Lock deals, which separate the two elements of your natural gas supply price to look for potential value compared to standard Fixed pricing. Ask your Account Manager for details.
April 2024 Natural Gas NYMEX Settlement Price: $1.575/mmbtu
Last month: March 2024 Natural Gas NYMEX Settlement Price: $1.615/mmbtu
Last year: April 2023 Natural Gas NYMEX Settlement Price: $1.991/mmbtu
In the forward market, March exited a relatively muted winter with a “spring ahead” attitude. The PPL forward 12-month curve jumped from 3.80 cents per kWh to 4.42 cents, a 16 percent increase propped up by a 2025 market trading on average nearly a penny higher than the same months in ’24. Long-term fundamentals still favor the bulls as the supply-demand imbalance of the current and future U.S. electricity system comes more and more into focus.
Still, the very low April natural gas prices dominated the headlines and gave everyone the “fear of missing out” perception that the market hasn’t been this low since the market dip from COVID-19.. With natural gas storage at a significant surplus to the five-year average and only 50- and 60-degree days ahead, it stands to reason that the market should be low. While it is low compared to many markers, the front months making it appear like we’re near all-time lows are a mirage. So if the question is, “Are these the best prices I’ve ever seen to the point where I’ll stop at nothing to get them?” then the answer is no. If the question is, “Should I be taking a serious look at the next two years, given all the reasons the price should go up?” then the answer is yes.
Remember that the rates above are energy only, and a true all-in price must include (among other things) capacity. Capacity has gotten much attention recently since it is a relatively small part of your price, which could get much higher on June 1, 2025. Uncertainty makes suppliers anxious, often translating into price premiums and extra contract protections. You can get educated about capacity, learn responsible ways to factor it into your price, and even know how to make it disappear; all three start by reaching out to your account manager.
The Institute for Supply Management (ISM) shows expansion in US manufacturing for the first time in 16 months since September 2022. Factory orders and production jump. Distillate prices are highly correlated with manufacturing and freight business sectors. Therefore, demand is directly impacted by changes in the business cycle. Expansion in manufacturing metrics is a good sign that the US economy remains on a strong footing, which is a tailwind for higher distillate prices.
We see further fundamental support and supply tightness throughout the barrel for distillates prices as US exports remain healthy, domestic stocks remain below their 5-year average, and geopolitical unrest in Russia with drone attacks have taken close to 1M bbls per day of refined product production offline. Another risk premium we see in the market is OPEC’s continued commitment to oil production cuts. At the same time, Middle East tensions have had limited lasting effects on prices but remain a factor. The Fed always remains a factor as inflation remains elevated, with rising energy prices and interest rate cuts now uncertain. Distillate prices will remain volatile with the monthly CPI data releases, but hotter inflation data may be offset with strong ISM manufacturing data.
Seasonal summer driving demand will continue to lift crude oil and gasoline prices, which we feel will also increase distillate prices. Midwest spring refinery maintenance and outages will support Ohio and Pennsylvania refined product cash markets and transpire to regional rack prices.
The gasoline market is currently transitioning from winter to summer specifications. We have seen a 28cpg jump in pipeline cash market prices in the PA region. Futures prices have also been at highs not seen since September 2023. Once terminal tanks are fully rolled, we expect rack prices to increase accordingly, as we already see in Baltimore markets. Given the velocity and catalysts of the energy rally, we are currently witnessing some analysts raising their peak summer retail prices to $4.00 at the pump. We have continually noted to customers that we have expected a broad-based seasonal rally given the strength of the overall US economy, paired with the continued curtailed supply bullishness seen in the crude oil market now manifesting. We see front-month HO futures continuing to catch a bid as the structure has reverted to backwardation, albeit with a brief stint in a carry market when Apr/May futures expired in contango for the first time since July 2021. We equate that weakness to seasonal end to winter length.
Propane remains well supplied into the shoulder season, and we expect prices to track and stay correlated with crude oil’s overall direction.
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.
