Energy Market Update October 2022 Recap

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

As we move into the cooler season, volatile markets across all energy products are expected. Though for the month of October, several other factors have contributed to the push and pull of the market. Earlier in October, OPEC+, a group led by Saudi Arabia and Russia, announced an immediate reduction of 2 million barrels per day of oil production, the biggest cut since the start of the pandemic. This pullback of oil comprises roughly 2% of global oil demand. This announcement is a cause for concern considering that on October 31st, OPEC updated their 2022 World Oil Outlook and stated that world oil demand will continue to rise for the next decade. Josh Rode, General Manager of Shipley Fuels Marketing, answered crucial questions on how the decision will affect energy markets. You can watch it on our YouTube channel. 

In the world of natural gas, the November 2022 Nymex contract sustained the trend of volatile trading. From the end of September until closing on October 27th, the November 2022 NYMEX bounced between $5 and $7. The recent NYMEX trading has been heavily impacted by mild weather across most of the country, which has decreased natural gas demand. Additional factors that will impact the natural gas market over the coming weeks are the continued war between Russia and Ukraine. With natural gas supplies from Russia being cut and disrupted, Europe will need to look elsewhere for supplies. Add that to the onset of cold weather, and we could see continued volatility in the natural gas market. 

As natural gas has dropped abruptly in the last month, electricity has followed suit but with a more muted impact. The extreme supply constraints in Europe exacerbated by the ongoing Russia-Ukraine conflict continue to be the dominant market factor in the news; everything else seems like details by comparison. Still, the market has dropped 36% since May and the war is far from over, so there are clearly bearish signals out there. Utility price offers tend to lag the market significantly, with many Pennsylvania utilities now showing their highest prices ever. Met-Ed’s price to compare is nearly 20% higher than their highest price over the summer. Columbia Gas nearly doubled their commercial price to compare, and residential customers saw a 128% increase on October 1st. 

With utilities generally on the rise and the open market finally falling, customers who have been patient so far would do well to take another look at their winter and 2023 rates. The team at Shipley Energy is available to help you find the best energy contract for your business.

Petroleum Market Update

Key Points

• Northeast and New York Harbor diesel and heating oil tightness and unprecedented shortages in stocks quickly emerge at the start of heating season and cooler weather.
• PADD1 seasonal refinery maintenance delays have caused even deeper October distillates and gasoline supply tightness in the Northeast.
• Open Gulf Coast arbitrage is fetching higher export prices drawing much-needed distillate supplies out of the U.S.
• A drop in manufacturing and core CPI data has not yet manifested its way into decreasing distillate demand, as some analysts are now seeing a recessionary event as deep as the global financial crisis to stifle growing distillate demand.
• Refining capacity has not been able to keep up with demand as numerous refineries have been offline due to a longer 5-year maintenance schedule, of which has been postponed from the pandemic demand shock.
• Extreme backwardation not seen since last spring’s structure has seen wholesale distillate prices top $5-5.50 this month.

Action Advice: 

With 80+ cent per gallon distillate backwardation, we may see a reprieve in the second half of November when two PADD1 refineries are fully up and running, post-seasonal maintenance. This will come at a time when supplies are in high demand, which could provide relief at the wholesale level.  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.   

Shipley Energy will diligently work with our customers to provide advice on the current supply situation. We expect extreme shorter-term volatility if energy Secretary Granholm imposes a refined products export ban, which is viewed as a potential large-scale disruption to global supply chains. 

Please continue to speak with your Shipley Energy Fuels Advisor to help your business navigate the current market. 

Electricity Market Update

Current Market Situation:

As natural gas has dropped precipitously in the last month, electricity has followed suit, but with a more muted impact. The Calendar 2023 power price in PPL opened the month at $0.0779/kWh. Trading at the time of writing is at $0.0710/kWh – a drop of 8.8%, or more than half a cent per kilowatt hour. The trading numbers only reflect the energy portion of the overall power price; an all-in fixed price must add in capacity, transmission, and other ancillary charges. When you consider that the average energy rate from May 2022 was $0.1115/kWh, this puts us in a significantly better situation.

Where the Market Could be Headed:

1. Bearish signals: the extreme supply constraints in Europe exacerbated by the ongoing Russia-Ukraine conflict continue to be the dominant market factor in the news. Still, the market has dropped 36% since May 2022 and the war is far from over. 
2. Current natural gas storage numbers are within 3% of where we stood in Q4 of 2021. Additionally, the prediction of a warmer than average winter shows the U.S. is likely to have enough natural gas to support winter heat demand. This should help to sustain lower natural gas and power prices, which is something to celebrate. Bear in mind that prices are not likely to reach pre-pandemic numbers; say goodbye to the days of $2 natural gas and 4 cent electricity. 
3. Continuing the trend of skyrocketing utility prices in 2022, this week PPL announced that their six-month price to compare starting December 1st will be 14.75 cents per kWh. This is a 26% increase from the current rate, a 142% increase from fall 2020, and PPL’s highest price ever. It’s another compelling reason to move away from utility supply and towards a consultant who can undercut that rate by as much as 5 cents or more. 
4. Utility price offers tend to lag the market significantly, with many Pennsylvania and Ohio utilities now showing their highest prices ever. Met-Ed’s price to compare of 11.48 cents/kWh is nearly 20% higher than the highest price they’d ever shown prior to this summer. Columbia Gas nearly doubled their price to compare on October 1st.

The primary factors that could cause electricity rates to bounce right back to summer or spring levels as we head into winter are:

• A turn of the tide in the war back to Russia
• An updated projection calling for a colder-than-normal or even extreme winter
• The return to production of the Freeport LNG facility sooner than expected, which would strip 2 billion cubic feet per day of domestic natural gas supply from our gas-fired power plants
• Mid-term election results that favor increased rates or the perception of increased rates

Action Advice:

With utility rates generally on the rise and the open market finally falling, customers who have been patient so far would do well to take another look at their winter and 2023 rates. Short-term prices are still the highest, with 2024-26 trading considerably lower than 2023, but choosing a less-than-ideal term is still a much better option than doing nothing. Remember, it’s the customers who “didn’t do anything” as their contracts ended who are shocked to see their winter energy bills triple or quadruple what they’re used to paying. 

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

Trading bounced between a range of $7.188/mmbtu and $4.750/mmbtu from the end of September until the November 2022 Nymex contract settled on October 27th, continuing the trend of volatility.

The November contract settled at $5.186/mmbtu, down from last month’s October 2022 settlement price of $6.868. The November settlement price is the lowest since March 2022 at $4.568/mmbtu.

The recent Nymex trading has also been heavily impacted by mild weather across most of the country which has decreased natural gas demand.

Additional factors that will impact the natural gas market over the coming weeks are:

• Mild weather across most of the U.S.
• The continued war between Russia and Ukraine with natural gas supplies from Russia being cut and disrupted, and the onset of cold weather entering winter
• Anticipation of potential cold winter temperatures with U.S. storage levels still slightly lagging the 5-year average storage level
• The potential impact of a global economic recession

Action Advice:

With Nymex natural gas market prices dropping to the lowest levels since March 2022, now is an excellent opportunity to consider locking natural gas supply rates. Prices are lower all down the curve, so price options anywhere from 6-36 months may now provide the opportunity to lock in. 

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.

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

Last month: October 2022 Natural Gas NYMEX Settlement Price: $6.868/mmbtu 

Last year: November 2021 Natural Gas NYMEX Settlement Price: $6.202/mmbtu

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.