The Shipley Energy Commercial Solutions Team is excited to share the May Energy Market Update to inform you of trends, weather, and other factors impacting the energy market. Read the April 2024 energy market update here.
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The June 2024 NYMEX Natural Gas contract expired for $2.493/MMBtu. This is the first month since February of this year that the NG Nymex settlement has been above $2.00. The prompt 6 months of the Nymex curve (June-November 2024) have climbed steadily over the past few weeks based on above-average temperatures, increased gas demand for power generation, and less flowing gas available from major gas producers cutting NG output. Before expiring, the June 24 contract traded as high as $2.924 before settling back down at the settlement. Prompt month pricing has held at a similar level as the July 24 contract has now moved to the front.
Concerns over extreme heat in the summer have grown recently as multiple weather outlets have predicted record-breaking temperatures on the horizon for summer. Temperatures have climbed as high as 100 degrees in southern Texas during the last two weeks of May. As temperatures rise and the electricity demand grows to meet air-conditioning needs, the natural gas market can also rally. Natural gas is the primary fuel source for about 40% of all electricity generated within the United States. With much of the summer still to come, this will be an essential market factor to watch in the coming weeks.
Levels of available natural gas in underground storage are above the average for this time of year however, that surplus has begun to narrow. As of last week’s report, the U.S Energy Information Administration is showing levels of gas in storage that are 15.7% above last year at this time and 26.5% above the average of the past five years. The gas surplus has recently narrowed on below-average injections due to more robust gas demand to meet electricity needs.
Natural Gas market price levels had fallen to the lowest point since 2020 to start this year, which prompted NG output decreases from significant gas and oil producers like EQT Corp. and Chesapeake Energy. Given natural gas’s very low market value, these companies needed help finding it financially viable to continue at the planned production levels. NG market prices have started to climb again off 4-year lows, which was the hope for producers who decided to curb output levels. The next question remains: at what market price level will we see those output levels return?
Factors impacting the natural gas markets currently:
As near-term pricing has climbed from 4-year lows, our recommendation has shifted from locking 6-month rates to locking 12-month rates to cover winter gas needs and find the best value.
Other rate options include Basis Only or NYMEX Lock deals, which separate the two elements of your natural gas supply price to look for potential value compared to standard Fixed pricing. Ask your Account Manager for details.
June 2024 Natural Gas NYMEX Settlement Price: $2.493/MMBtu
Last month: May 2024 Natural Gas NYMEX Settlement Price: $1.614/MMBtu
Last year: June 2023 Natural Gas NYMEX Settlement Price: $2.181/MMBtu
The story of electricity in May was one of 2024 catching up to future years. For most of the year, both spot and “rest of ‘24” prices were trading at a significant discount to anything offered in ’25 and ’26. That gap has now begun to close, but not in the direction consumers would prefer; the remaining 2024 prices are rising toward the 2025 price levels. The PPL forward 12-month curve increased slightly from last month’s 4.55 cents to today’s 4.59, with the six full months remaining in ’24 priced at a very similar 4.60. In other words, 2025 doesn’t look so bad now! (Remember these are energy-only rates and do not equate to an all-in fixed retail price.)
While two lackluster winters in a row have led to a short-term domestic surplus, the overall supply-demand picture certainly favors the bulls. Whatever technological advances you’re most excited about or most afraid of, they all require more electricity than we currently have. There are no apparent sources for increased economic supply in the future, so prices must go up to correct the market. Unless you have a particularly bearish outlook on the summer weather, the election, or the start of winter weather, it would be wise to take 2025 off the board sooner rather than later.
And remember, the cheapest kilowatt hour is the one you don’t use. Has it been at least a decade since you last looked at lighting or efficiency upgrades? If so, you’re probably past-due to revisit and see how you can address the supply-demand imbalance on your terms.
Technical price damage abounded as the energy selloff continued in May. Last month we highlighted, “With the current futures selloff we are targeting 2.48 down to 2.40 for a seasonal low for ULSD. Below 2.40 targets the 2023 lows 2.30 down to 2.15. We feel the market, demand and economy is on stronger footing than one year prior but would not rule out more downside if the market cannot stabilize shortly. For RBOB gasoline we are targeting 2.58 with an intermediate downside target of 2.52. Below 2.52 targets 2.40. For RBOB to weaken down to the 2.40’s we feel demand would need to significantly underperform which we do not anticipate.”
Overall, the crude market was net short positions in May and added significantly to the short positions. This further enhanced the weakness and the energy market did not stabilize, which brought the lower levels that we previously discussed. Recently ULSD futures lows hit $2.25 while RBOB broke down to 2.39 and more recently 2.2985 having since recovered slightly. A few major themes are playing out which could be attributed to the price weakness, which we feel is shaping up to be a great opportunity when comparing prices to the last 3 year lows.
A few themes we are seeing having an negative impact on near term prices:
Other key highlights
Action Advice: The downtrend continued throughout May and signs of a bottom are starting to appear. We are approaching multi year level lows in prices noted above. We believe that demand will continue to recover throughout the summer driving season and turn its attention to hurricane season into the fall. Our advisors will continually stay in touch to help you with your questions or concerns.
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.
