Energy Market Update November 2022 Recap

Our Shipley Energy Commercial Solutions Team is excited to share with you the November Energy Market Update to keep you informed on trends, weather, and other factors impacting the energy market. Read lasts months energy market update here.

 

Petroleum Market Update

Key Points

  • Distillate tightness remained during 1st half of November as product shortages and demand surged, while the second half saw a very swift reversal as much needed distillate product arrived into the northeast from the Gulf Coast–the largest refining center in the US.
  • Seasonal refiners have ramped up production a bit sooner.
  • A drop in manufacturing and core CPI data has started to manifest its way into data, as we are seeing trucking demand start to soften.
  • Warmer weather in November hampered 2nd half demand as product filled the void due to higher margins creating a one-two punch.
  • The world largest crude oil importer, China, is still enforcing strict lockdowns, an action that can be translated into the notion that their crude oil demand has yet to rebound.
  • PADD1 seasonal refinery maintenance is complete, assuring regional supplies are ample prior to the height of winter heating demand.
  • Some distillate cargoes earmarked for export in the Gulf Coast have been resupplied back to the US, keeping supplies domestic.
  • Extreme distillate backwardation has normalized as the market appears to be in a “cooling off” period heading into the holiday season.

Action Advice: 

Last month we advised, “If U.S. export and colder weather demand outpace supply, we could expect another basis and cash market roll-up as the Northeast experienced last winter and spring.” Check out October’s market update here for a recap.

The colder weather never came to fruition with regional temperatures average to above, and wholesale prices reacting lower accordingly.  December marks a Russian crude oil price “cap”, but we think this oil in the interim will make it to market someway.  We are more focused on the EU ban of Russian refined products and how that will affect the distillate markets later this winter.  In the interim, winter weather will be the main driver of refined product demand and volatility as we are now distanced from the highest traveling periods until spring.

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. 

 

 

Electricity Market Update

Current Market Situation:

Near term prices for electricity have been pulled up by rising natural gas prices in the past month. 2023 wholesale natural gas prices have risen roughly 15% since the end of October, which has dragged electricity pricing along with it. This increase has pulled wholesale 2023 electricity prices up about 20% from about $0.06/kWh in late October to $.073/kWh at the time of writing.  Add in the required retail uplift costs, customers can easily see prices above $0.11 cents/kWh.

Expectations for a cold winter and the continuation of hostilities in Ukraine are still the primary drivers of the market movement. The risk of additional prices increases could be on the horizon as off-line natural gas export facilities return to service over the coming months.

Where the Market Could be Headed:

Natural gas prices worldwide are much higher than in North America, leading to increased pressure to export liquified natural gas to Europe and Asia.   Every cubic foot of natural gas we export is a cubic foot that can’t be used to generate electricity here, driving US energy prices higher.  The limiting factor on these exports continues to be our capacity to liquify, ship, and re-gasify natural gas, especially with a large facility on the Gulf Coast out of commission for the past several months.  This facility is currently forecasted to return to service in the next few months, and rising US natural gas prices could pull electricity prices up as a result.    

The other factor that could lead to price increases is a winter weather forecast that appears to be turning colder. As our demand for power and the competition for natural gas supply increases as the temperature drops, higher prices are the natural result.   Winter months typically see higher energy prices, and there isn’t much to suggest that this winter won’t follow that pattern.    

National storage levels of natural gas, which have run well below average for most of this year, have caught up in a warmer-than-normal late Autumn period. Storage levels are currently at the 5-year average, easing the upward price pressure. This milder weather has helped many customers use this fall to lock in solid electricity rates for the coming years.     

We can expect to continue seeing utility price offers increasing based on these higher price points when their wholesale supply auctions come due. In some cases, the price to compare has gone up by 20% to an eye-popping 100% in recent weeks. As an example, PPL increased their price to compare 95.6% from 11/30/21 to 12/1/22 (or over the past year). Expect more of these increases through the winter and spring.  A low and stable electricity rate from your utility is not a sure bet in the coming months.  

Action Advice:

We have been advising customers for the past several months that almost any action to hedge their 2023 power rates was better than inaction. We are beginning to see the window of opportunity starting to diminish for those who still haven’t protected themselves from rate increases in the coming year. Energy buying in this market is not a “do-it-yourself” prospect – make sure you are getting expert advice from a trusted supplier or an advisor that will protect your best interests. 

 

 

Natural Gas Market Update

The December 2022 Nymex contract saw yet another volatile period bouncing between a range of $7.60/mmbtu and $4.75/mmbtu from the end of October until the December 2022 Nymex contract settled on 11/28. 

The December contract finally settled at $6.71/mmbtu, up significantly from last month’s November 2022 settlement price of $5.186.  

While near term forecasts for much of the country have warmed up entering December, there is still the potential for much colder temperatures in the next three months which would drive up heating demand and potentially send market rates climbing higher.  

There is also remaining uncertainty around the return of the Freeport LNG (liquified natural gas) facility in Texas. Freeport has announced the potential to begin partial operations in December and a return to full operation in January, but those plans are still subject to approval from federal regulators. When in operation, the Freeport facility sends 2 BCF (billion cubic feet) per day of natural gas to ports in Europe and Asia. While offline, the availability of this extra gas has allowed storage levels to return to the 5-year average and available to meet heating demand. 

Factors impacting the natural gas markets currently:

  • Warmer temperatures across most of the U.S. reducing heating demand
  • Supply reductions and continued uncertainty surrounding Russian natural gas supplies being sent to Europe
  • Anticipation of potential cold winter temperatures with U.S.
  • The status of the Freeport LNG export facility

Action Advice:

With Nymex natural gas market prices down from the highs of over $9 we saw back in September, now is an excellent opportunity to consider locking in natural gas supply rates. Reach out to your Account Manager for quotes ranging from 6 month to 36-month supply options for opportunities to lock in at the best value. 

Other 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.

 

December 2022 Natural Gas NYMEX Settlement Price: $6.712/mmbtu 

Last month: November 2022 Natural Gas NYMEX Settlement Price: $5.186/mmbtu 

Last year: December 2021 Natural Gas NYMEX Settlement Price: $5.447/mmbtu 

 

November Energy Market Opens and Closes

 

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.