Market Newsletter – June 2017June 01, 2017
Major temperature forecast swings have been at the forefront of energy prices, witnessing prices swing in concert with the ever-changing forecasts. From mid-May up until June 19th, spot prices saw an almost $0.50 price reduction per MMBtu despite June registering as one of the top ten hottest Junes since 1950. Increased production and pockets of lower temperatures in major energy consuming regions have applied the downward pressure. Weather forecast volatility reached a peak over the holiday weekend as above normal temperature predictions across the US moved dramatically lower for the eastern half of the country, inspiring a major sell-off to start the summer peak season (July-Sept). These forecast changes inspired volatility and have since caused weakening in the end-of-summer natural gas storage forecasts, thus, driving winter premiums down. It should also be noted that the amount of power generation is averaging 6% lower y-o-y despite demand for natural gas-fired generation ramping up with higher cooling needs in June. The lower power burn is due to changing weather patterns, increased renewable generation, and higher natural gas prices.
The 12-month natural gas strip broke through $3.00 dollars for the first time since late February and only the fifth time over the past 12months. Each time the 12-month strip dips below three dollars the opportunity is short-lived – with only last Fall experiencing an extended dip below the threshold
(approximately a two week period). Given that the NOAA warm summer forecast has held true for most of the country, expect prices to remain attractive for a limited time.
NYMEX calendar strip prices for 2018-2021 are down 1%-5% month-over-month and are currently trading below
$2.90/MMBtu. Despite softening in the forward curves, natural gas exports and increased demand for power generation are keeping prices in check to the downside. Another indication that current price levels may not stick around.