Market Newsletter – October 2017October 01, 2017
As we move into the final quarter of 2017, let’s look back at the final month of Q3, which was one of the more volatile months we have experienced lately from a price perspective. With that said, it is certainly important to view September in the context of the relatively tame summer months that preceded it. Initially, tempered demand resultant of hurricane demand destruction kept prices hovering just above the ever-psychological $3 range as production returned to normal levels and injection numbers were mostly right in line with expectations.
Significant mid-month warming for most of the country bolstered prices as cooling demand spiked, and for the first time since June, we saw the 12-mo natural gas strip settle at or above $3.10 for a week straight. As temperatures and forecasts returned to seasonal norms, we saw larger than expected injection numbers drive the price of natural gas back down to the $3 levels. As we move into October, the expectation for natural gas to be range-bound between $2.90-$3.15 remains strong as we wait for more information to be released regarding the winter weather forecast and the corresponding supply and demand fundamentals that will drive trading behaviour.
By and large, electricity day-over-day movement mirrored the natural gas curve in September, and it continues to do so as we move into October. However, there has been a lot of discussion lately about why, in the face of decreased demand and decreased cost of marginal supply fuels, the overall cost of power has increased to the end user. A combination of retiring nuclear plants, legislative changes at the state level to clean energy requirements in the face of loss of nuclear base load, and enhanced grid reliability have all contributed to a rise in the both the cost of delivery and supply of power. This is a trend we expect to continue as we move forward and will likely bring a host of changes to product structures and supplier contracts – each of which are worth keeping a close eye on.