The Shipley Energy Commercial Solutions Team is excited to share with you the May Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read last months energy market update here.
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Natural Gas Update
Electricity Update
Petroleum Update
The June 2023 NYMEX Natural Gas contract expired at a price of $2.181/MMBtu. This is the lowest settlement price for a June NYMEX contract since 2020 ($1.722) and is down 75% from last year’s historically high June settlement price ($8.908). Nymex natural gas prices have fallen consistently back to 2020 level price lows in recent months due to mild/warm weather and low heating demand. The prompt NYMEX contract for July 2023 is currently trading in the $2.25-$2.35 range.
Warming spring temperatures across most of the country have prompted steady drops in the level of natural gas demand for heating. This lack of demand is what has allowed Nymex market pricing to sustain peak Covid level price lows since April. Things are expected to change however as temperatures begin to climb in the 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. Historically, Spring months have been one of the best opportunities in the calendar year to lock in fixed natural gas rates before peak summer and winter demand spikes.
Adding to the current downward pressure on the Nymex market is the current level of gas available in underground storage for use in winter. The current level of gas available in storage is right now sitting above the 5-year average level for this time of year. Having ample supplies of natural gas in storage available to meet winter demand spikes plays a significant role in how the Nymex market moves throughout the peak cold months.
Action Advice: With continued low market demand and well above average levels of gas in winter storage the NYMEX natural gas market has remained near low prices not seen since the peak of the Covid-19 pandemic in 2020. Act now to lock-in fixed natural gas supply rates for the next 6-12 months before the summer heat when demand for natural gas is expected to climb 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.
June 2023 Natural Gas NYMEX Settlement Price: $2.181/MMBtu
Last month: May 2023 Natural Gas NYMEX Settlement Price: $2.117/MMBtu
Last year: June 2022 Natural Gas NYMEX Settlement Price: $8.908/MMBtu
May was a story of truly “little news now and surprise opportunity later”. For the “now,” June 2023 barely moved for electricity or its close relative natural gas; for the “later,” January 2024 electricity ended at 7.83 cents per kWh after starting the month at 8.86.
The net effect is that the 12-month forward curve went from 4.82 cents down to 4.55. While that may not seem like much, natural gas was showing signs all month long of wanting to break the ceiling of its recent range. To end the month down—even if slight, much less more than 3 mils, is a win. (Friendly, frequent reminder: this 4.55 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.
You may be thinking, “well that sounds nice, but I really don’t want to take any sort of increase from the 3-year price I locked in at the start of Covid during a worldwide emergency and 20-year market low, so I’ll wait this out.” And to do so would be… a choice. But it’s also one of the riskiest choices you can make. One year ago, the same 12-month forward curve was trading at 11.15 cents. How much lower is 4.55 than 11.15? Well, here are some comparison points:
Shoulder months tend to be light on fundamentals, so the market looks for any reason it can find to claim a direction. We now know that the net effect of that direction in 2024 was down. It is June and beach season has begun… how long until the first 98-degree day puts pressure on the system and sends prices soaring 15% in two days?
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.
Early May weakness in refined products and crude oil hit low price levels not seen since December 2021, which marked a low area in prices after the first announcement of crude oil reserves released from the Strategic Petroleum Reserve (SPR). Those late 2021 lows acted as springboard for prices on their way to all-time highs for HO and RB in 2022.
The 2.00 – 2.15 proved to show strong support for HO futures, which is seasonally normal to be weaker than RB gasoline futures during May. HO, or middle distillates, is the most economically sensitive product, and given the continued poor economic data, the price weakness is to be expected. As for gasoline demand, it too has not been as strong as recent years. The barometer to watch for seasonal gasoline demand is 9M bbls per day, which during May EIA report, showed gasoline demand struggle to get above.
Overall energy continues to face global macroeconomic challenges. China was expected to be the silver lining during the global economic downturn for crude demand. The rebound in the China energy demand story has yet to play out during a seasonal high point for crude oil. This in part lead to OPEC nations cutting oil production by 1M bbls per day which started in May. Rallies were short-lived and sold off while prices continued to hit new lows for the year.
Areas we have been watching:
During our last market update on 5/11/23, we stated areas for HO and RB to watch which have played out to our upside targets during the mid-month rally off the lows:
“Front month HO futures with a trade and close below 2.32 brings 2.22 back into play with last week’s low of 2.15 if markets roll back over. A trade above 2.42 brings heavy resistance around 2.50 level which will be a challenge to trade above in the near term.”
“Front month RB above 2.52 bring 2.57, 2.65, 2.72 (2.7342 monthly high) back into play. Below 2.44 brings the 2.40 down to 2.31 rang back into play. If gasoline demand rolls over with larger stock builds, it could bring 2.20 area into play. We do not see this 2.20 in play in the near term.”
We are now watching front month HO 2.22 area very closely for a break below which we feel would usher in fresh short selling. For RB gasoline, if the 2.31 area does not hold the 2.20 area comes back into play. We feel there will be a rebound in gasoline demand as it and refinery product start to hit its peak post Memorial Day into July 4th.
We continue to believe this market will be rangebound in the interim until the Fed halts raising rates and a rebound in economic activity, mostly industrial demand related to distillates. Ukraine supply and price crisis has been unwound as the market will eventually start looking forward to a global economic rebound. We feel any HO breaks below 2.22 down to 2.15 are critical areas of support and should be viewed as such.
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.
