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The Shipley Energy Commercial Solutions Team is excited to share the December Energy Market Update to inform you of trends, weather, and other factors impacting the energy market.
Read the November 2024 Energy Market Update ->
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Petroleum markets breakout of months long range, as increasing interest rates yields and inflation boost prices along with winter distillate heating demand.
Winter is in full swing as a sustained cold snap has helped support and give rise to petroleum prices. With the onset of winter, the cold weather has been welcomed. Refinery production has maintained seasonal norms, accompanied by east coast distillate demand and stocks in storage.
Middle distillate demand is increasing significantly with the arrival of sustained cold, which has helped break petroleum prices out of a 3-month range. ISM Manufacturing increased in December slightly to 49.3 which is still in contraction territory below 50, but showed a slight increase of 0.9 over November. We are expecting a manufacturing recovery and expansion into Q1 of 2025 which will inherently drive the demand for diesel higher.
Last month we advised flat price support levels that needed to hold in order for a price rally:
[November Update] “WTI must close and stay above 65.30, HO 2.15 and 2.0775, and RBOB 1.85. We believe if crude oil were to fail and close below 65.30 it opens the door for $52-57 range. This would inherently drag down diesel, heating oil and gasoline prices.”
All of these levels have held and a strong reversal in price has ensued. We are watching price action closely here as 2024 year-end short position covering and early January commodity fund position rebalancing has helped drive the rally. Near term HO futures contract price (FEB) resistance at 2.41 to 2.50 is in play for the balance of January if the cold weather continues to support heating demand. Gasoline is also enjoying a seasonal rally in which price typically bottoms in December and moves higher into the spring months. Although RBOB is still range bound dating back to August of 2024, a move 2.10-2.15 would be needed to make a push to 2.30-2.40.
Action Advice: Last month we mentioned the forward distillate curve is flat throughout 2026, which we viewed as a good opportunity to start laying off fixed price and forward demand. The curve has since moved into 10cpg backwardation making the forward outlook even more appealing to lock in fixed basis. We are expecting ULSD to continue to stay in backwardation but to a lesser extent after the cold weather subsides. A recovering manufacturing sector in 2025 will be the catalyst to recovering demand.
The January 2025 NYMEX natural gas contract expired at a price of $3.514/mmbtu.For a brief period, natural gas futures ran above $4.00/mmbtu before quickly dropping around $0.70. The cause of this is contributed to the change in weather forecasting. Many other factors have an effect on this pricing, such as: near record gas flowing to United States LNG export facilities, gas prices increasing in Europe, and higher-than-the-average heat demand in the United States due to lower-than-normal temperatures. We also suspect that the eruption in pricing stems from an above average amount (124 Bcf) of gas pulled out of storage facilities during the last week of December.
At December’s end, the U.S Energy Information Administration (EIA) is showing a 116 Bcf decrease in gas storage from the previous week. Stocks were 67 Bcf lower than last year, and 154 Bcf higher than the 5-year average. Despite these numbers, working gas is still stable, and limits are within the historical ranges for the last 5-years.
A Russian pipeline that feeds Europe, Ukraine, as well as parts of Austria, Slovakia, and Moldova has closed down due to the war between Ukraine and Russia. Most European countries no longer relied on the Russian pipeline and have made variations to their route of obtaining supplies, such as utilizing the United States, Qatar, and others. The pipeline running dry is said to be a result of Putin’s invasion of Ukraine in early 2022. Ukraine is not extending the terms of the agreement made six decades ago to use said pipeline. We are uncertain of the impact this may have on natural gas rates within the United States. More on this can be found here: Ukraine closes Russian natural gas pipeline into Europe.
Factors impacting the natural gas markets currently:
Action Advice: Since colder weather has arrived, we’re likely to see strong storage withdrawals and increased LNG export demand, which can cause prices to rise. If you’re not locked in for 2025, speak with your account manager to determine the best strategy for your business.
Rate 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.
January 2025 Natural Gas NYMEX Settlement Price: $3.514/MMBtu
Last month: December 2024 Natural Gas NYMEX Settlement Price: $3.431/MMBtu
Last year: January 2024 Natural Gas NYMEX Settlement Price: $2.619/MMBtu
After a warm start to winter, forecasts shifted colder in late December and the electricity market saw prices and volatility increase as a result. The 12-month electricity price at the start of the month was ~$39.04/MWh in Ohio and rose to $42.12/MWh by the end of the month. In PA, it jumped from ~$42.57/MWh to $45.87. Looking at longer terms, the 36-month strip in OH rose $2.60 to end the month at $45.74. PA was similar with a $2.75 rise to end at $50.70.
As we continue to get closer to the start of higher capacity prices on 6/1/2025, end users will begin to see their prices rise as more of these high-priced months are considered in their quotes.
We have seen a sharp rise in volatility primarily driven by weather forecasts that now expect widespread cold through the end of the month . We continue to see market fundamentals that are worrisome for energy buyers:
The wholesale energy markets watch these factors, and changes can push prices up or down on a daily basis. Based on where we stand now, we recommend evaluating these strategies:
Want to help your business navigate the current market? Get started with your Shipley Energy Advisor today!
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.
