The Shipley Energy Commercial Solutions Team is excited to share the April Energy Market Update to inform you of trends, weather, and other factors impacting the energy market. Read the March 2024 energy market update here.
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The May 2024 NYMEX Natural Gas contract expired for $1.614/MMBtu. This marks the third month the NG Nymex settlement has been below $2.00. The last time Nymex Natural Gas settlement prices leveled off at the sub-$2 range, gas demand and economic output were grinding to a stop during the height of the Covid pandemic in March to August of 2020.
The current outlook is that these sub-$2.00 settlement prices could continue throughout spring and summer on low demands and mild to warm temperatures. One of the major factors that could spur higher-than-expected demand and a spike in prices is the severity of heat across the U.S. over the summer months. Natural gas is a primary source of fuel that power plants use to generate electricity and meet air conditioning needs across the country. Natural gas accounts for about 40% of all electricity generation within the United States. Persistent high temperatures during the summer would result in increased demand for natural gas to fuel power burns, which could cause market prices to climb. The Capital Weather Gang noted in The Washington Post that a new summer weather outlook from the National Weather Service shows the likelihood of hotter-than-normal conditions for all regions of the U.S. over the summer and a potential for record-breaking high temperatures.
Levels of available natural gas in underground storage remain well above average for this time of year. As of last week’s report, the U.S. Energy Information Administration shows levels of gas in storage that are 22.1% above last year and 37% above the average of the past five years.
After announcing that they would cut their quarterly production output by 5-7% throughout March, EQT Corp., the largest producer of natural gas in the U.S., stated last week that they would look to extend production cuts into May. This followed the decision by Chesapeake Energy in February to cut the amount of fuel they were planning to produce in 2024 by approximately 30%. Natural gas market price levels are near the lowest point since 2020, prompting a decrease in production by these major producers. The current natural gas market levels hovering around four-year price lows result from mild winter temperatures and a drop-off in gas demand as we enter Spring. EQT also stated that there is the potential to lower gas outputs even further based on market conditions moving forward.
Current factors impacting the natural gas markets:
May 2024 Natural Gas NYMEX Settlement Price: $1.614/MMBtu
Last month: April 2024 Natural Gas NYMEX Settlement Price: $1.575/MMBtu
Last year: May 2023 Natural Gas NYMEX Settlement Price: $2.117/MMBtu
Despite expected mild temperatures and relatively little market news, April continued the increase from recent Valentine’s Day lows. The PPL forward 12-month curve was 3.80 cents in February, jumped 16% to 4.42 cents last month, and has increased another 3% to 4.55 cents. (The rates are energy only and do not equate to an all-in fixed price.) The only reason the increase wasn’t greater is that the remainder of 2024 continues to soften despite natural gas rising above the $2 mark. This continues the narrative that unhedged is the best place to be for 2024 but brace yourself because 2025 is coming.
The upcoming summer is expected to be another top-five event, effectively serving as a preamble to the larger fear that there may not be enough electricity to go around shortly. The supply-demand mix continues to teeter as generation plants retire, rig counts decrease, and demand from data centers, crypto mining, and EVs shows no sign of slowing down. While there are few fundamentals to support forward 2025 and 2026 prices dropping this year, customers must grapple with the premiums to lock in those years and decide when to get off the train before it has picked up too much speed. Of course, surprises happen now and again… but is hope a strategy?
Three types of commercial users should be looking at contract renewals right now:
Even for users who prefer to lock in energy, passing through the smaller price component of capacity makes a lot of sense for those willing to rethink their supply price slightly. There’s still too much uncertainty in the capacity market after May 2025 for suppliers not to place significant premiums on that part of the price or try to be deceptive with how they may increase it later. Get it out of your price, pass it through at cost, and don’t look back.
April refined product prices rally then fail. The gasoline rally continuation during the first half of April was seasonally on time, followed by a selloff that mirrored 2023. RBOB futures bottomed 12/13/23 and peaked on 4/12/24. During the same first-half cycle of 2022-2023, the seasonal low was put in on 12/13/22, with a first-half 2023 high achieved on 4/13/2023. ULSD saw the same prices during April of 2023 with very similar price action. Both contracts did not see their first half of the year bottom lows until 5/4/23, coincidentally the day after the Federal Reserve’s monthly interest rate decision. This year, the May FOMC Fed Reserve interest rate decision occurred on May 1st, with a sharp market selloff leading up to the meeting. One can draw close similarities year-over-year and prior years during May to look for market direction. Market technicians and price watchers have taken note of the similarities that cannot be ignored.
Geopolitical Middle East tensions between Israel and Iran escalated and roiled energy markets during the first half of April. Crude and refined product futures rallied close to 10% on the threat of war, supply disruptions, and broader conflict spilling over in the Middle East as Israel and Iran exchanged missile strikes. After Iran’s response was deemed “complete,” a typical seasonal April selloff ensued.
The forward heat curve returns to the contango carry market structure for the first time since July 2021. US economic data points to stagflation, with slower growth, while overall prices and inflation remain elevated. April showed ISM manufacturing contracted slightly and slipped lower compared to an expansion in March. Seasonally, March and April are low points for ULSD and HO prices as winter distillate demand wanes, while the market has yet to focus on the back end of the (winter) curve and increased summer gasoline demand.
We are in agreement with research showing gasoline demand is not as poor as last year by underperforming last April by -4.4%. Consequently, last September EIA gasoline demand initially showed -5.6% YoY, which eventually was corrected and revised higher to -0.4%. Gasoline demand has been revised higher the past 22 of 24 months, while distillate (diesel) demand has been revised higher each of the last 24 months.
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.
