Energy Market Update: November 2023 Recap

The Shipley Energy Commercial Solutions Team is excited to share the November Energy Market Update to inform you of trends, weather, and other factors impacting the energy market. Read the October 2023 energy market update here.

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Natural Gas Market Update

The December 2023 NYMEX Natural Gas contract expired at a price of $2.706/MMBtu, down nearly 60% from last year’s historically high December settlement price of $6.712/MMBtu. The December 2023 settlement is the 9th monthly NYMEX settlement this calendar year to come in below $3, compared to the period of August 2021 through January 2023 where every NYMEX settle was at least $4 and reached as high as $9. NYMEX prices during that period skyrocketed based on concerns of supply chain disruptions and global gas shortages.

With the start of winter, natural gas placed in underground storage has begun to be withdrawn to meet increased heating demands nationwide. As we enter the withdraw season, current levels of available gas in storage remain above average for this time of year. As of last week’s report, the U.S Energy Information Administration is showing levels of gas in storage that are 8.9% above last year and 7.9% above the average of the past 5 winters.

Entering winter with storage above historical average levels bodes well for the outlook of meeting heating demands domestically when the coldest days of the year arrive. Ample supply in storage eases concerns of supply shortages during critical times of heating demand, which should work towards keeping NYMEX market prices stable and avoid spikes to higher levels.

Frigid temperatures and some early snow showers greeted the Northeast and Midwest over the Thanksgiving holiday. For December, weather models are currently showing a likelihood of above average temperatures for the Central and Western United States, while the Eastern part of the country is predicted to see closer to average temperatures for this time of year. However, early indicators are showing a potential for colder than normal temperatures starting at the end of December and moving into January.

Current Factors Impacting the Natural Gas Markets:

  • Above average levels of natural gas available in storage for winter compared to the year ago and the 5-year average.
  • Strong storage levels reducing concern for winter gas supply shortages.
  • Average to above average expected temperatures for most of the country in December, potentially giving way to more serious cold to start the new year.

Action Advice:
Now is the time to lock in fixed natural gas rates for the next 6-12 months before colder winter temperatures send natural gas markets climbing.

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.

December 2023 Natural Gas NYMEX Settlement Price: $2.706/mmbtu

Last month: November 2023 Natural Gas NYMEX Settlement Price: $3.164/mmbtu

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

Electricity Market Update

November was a huge gift to unhedged 2024 positions. The PPL forward 12-month curved plummeted 13.5% from 4.70 cents to 4.07 cents per kWh. This appeared to be in response to an anticipated warm December coupled with encouraging storage reports holding natural gas at a 7% surplus. Those who bet against the odds and held out until mid- to late-November for their early 2024 renewals look pretty smart in hindsight.

This current 12-month curve is not only low compared to last month – it’s low compared to anything in at least the last two years. Some comparison points below highlight just how attractive this market is right now:

  • Today’s (11/29/23) 12-month curve of 4.07 cents is 63.5% lower than the 2022 high of 11.15 cents.
  • January 2024 is trading at 5.08 cents compared to 6.70 cents a month ago and 7.83 cents on May 30th of this year.
  • January 2024’s comparison to January 2023 this time last year is also quite stark – today’s 5.08 cents versus last year’s 14.19 cents. That’s a discount in “the January we’re heading into” of 64% and more than 9 cents!

Still, despite the unexpected and appreciated gift of this down market, there aren’t many fundamentals to support the idea of it lasting very long. The U.S. is still rapidly expanding our LNG export facilities and retiring coal plants, both of which will reduce domestic supply. At the same time, we are increasing EV development which will increase demand. And as the business majors may recall, the only cure for increased demand and decreased supply is higher prices. The recent Israel-Palestine attacks have had almost no effect on the natural gas and electricity market so far, but the Russia-Ukraine conflict will soon enter its third year and continue to place a chokehold on global supply while we brace for an eventual cold winter (this year or otherwise).

Action Advice:

  • If you’re a January or February start and have managed to not yet lock in, you’ve been given a great gift and the time to cash in is before winter arrives. Lock at least 2024, which will show the greatest drop, and consider layering in some of ’25.
  • March to December 2024 starts may be tempted to ride the down-wave a bit longer, but if nothing else it’s a good idea to look at renewal pricing now. It doesn’t hurt to look and may turn out to be the lowest pricing you’ll see for this next term.
  • Larger users renewing in early 2025 with a tolerance for layering in buys (versus fixing the entire load at once) should absolutely be buying hedges for the months showing the greatest opportunity. Contact your account manager to set up a review, build a hedge workbook if you don’t have one, and make a few initial buys.

Petroleum & Refined Products

Crude oil bearishness gains momentum as we see double-digit percentage declines dragging down refined products

The wild swings in the petroleum markets continued throughout November with crude oil seeing highs at $83.42/Bbl and lows at $72.37/Bbl, a 13% move lower in just several days. Many believe this is the new normal for crude and energy prices as algorithms and CTA’s (Commodity Trading Advisors) have filled a trading liquidity vacuum left in the wake of the extreme volatility during the onset of Covid and Russia Ukraine war.

Detached from fundamentals

Physical market supply demand fundamentals are having far less of an impact on nearer term energy prices. OPEC, the world’s largest energy cartel, has been steadfast in its coordinated efforts to support energy prices through crude oil production cuts. OPEC’s cuts have done little to support higher prices as the overall trend has been down since September’s $95/Bbl high. All this weakness translates to lower ULSD/HO, Rbob gasoline prices and wholesale rack prices. Demand, over supply, ultimately is the predominate driver of prices and overall inflation has been moving lower due to the larger global macroeconomic trends. In short OPEC is slightly losing its grip and control on oil production and its impact on prices. The US is at record crude production while other countries outside of OPEC continue to pump more.

Seasonal refinery maintenance, which plays a role in lower crude demand, is ending and should give a boost in oil demand while increasing refined products. US distillate stocks remain tight at ~16M Bbls below seasonal average and may see a bump in stocks on-hand if El Nino proves to be a mild winter. Wholesale distillate and gasoline vs. NYMEX futures prices have widened considerably due to regional pipeline constraints and supply shortages.  The overall wholesale fuel premium over NYMEX HO and RB futures should revert back to seasonal norms as refineries exit maintenance and we get past this near-term mild weather.

Regional pipelines have remained constrained with line space for gasoline and diesel commanding very sharp premiums for pipeline allocation, exhibiting temporary supply tightness. Overall flat price movements have continued to trend lower, and without a significant demand increase catalyst, futures prices will continue to trend sideways to lower.

We feel gasoline futures have neared a bottom with the multiweek fall in wholesale gasoline prices nearing an end.

Action Advice:

Distillate demand fundamentals remain neutral to bullish as illustrated in the current futures market spread backwardation ~+7.5cpg (month ending Nov 2023) heading into winter, but for flat prices to rebound, winter demand will need to show up soon.  We recommend being patient into calendar year end to see how the weather impacts prices and demand.

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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