Energy Market Update: November 2024 Recap

After a warm start, November ended with a streak of below-normal temperatures, and the electricity market saw prices increase. The 12-month electricity price at the start of the month was ~$38.91/MWh in Ohio and was at $39.87/MWh by the end of the month. In PA, it jumped from ~$42.17/MWh to $43.29. Looking at longer terms, the 36-month strip in OH rose $0.27 to end the month at $42.96. PA was similar, with a $0.20 rise to end at $47.60. As we get closer to the start of higher capacity prices in 6/1/2025, end users will begin to see their prices rise as more of these high-priced months are considered in their prices.
Although the monthly changes above look relatively mild, we have seen a sharp rise in volatility in the past two weeks, primarily driven by weather forecasts.

We continue to see market fundamentals that are worrisome for energy buyers:

• The number of US gas drilling rigs is about 14% lower than last year.
• Natural Gas storage injection levels are currently 267 BCF above the 5-year average, which has helped offset the drop in rig count and production. However, a colder-than-expected winter could quickly decrease this surplus.
• PJM is facing issues related to its capacity market structure and, as a result of cases brought against them, has moved the 26/27 auction to next July. While this may give them a chance to revise the auction to encourage lower rates, it also means that contract terms available with known capacity rates will continue to shrink.

The wholesale energy markets watch these factors, and changes can push prices up or down daily. Based on where we stand now, we recommend evaluating these strategies:

• If you haven’t already, lock in your energy price through the end of 2025 as soon as practical.
• Continue to avoid longer-term contracts, especially longer than May 2026, as capacity prices for this period are still unknown. If you want to lock in longer terms, consider a capacity passthrough product that avoids these issues.
• If you haven’t already, invest in a plan to reduce your peak demand and overall energy consumption. Lowering your associated PLC tag could have substantial price benefits with the looming rise in capacity prices.

Your to-do list for December and the remainder of winter:

• Make sure you have a good relationship with a trusted energy advisor – you will want someone with experience and expertise watching the markets to help you pick the best time to buy.
• As you budget for 2025 and beyond, expect prices to be higher than you pay now. Watch for changes in weather trends as sustained cold will push prices higher into next year.

Petroleum & Refined Products

Petroleum markets remain rangebound as contrasting supply-demand projections remain.

This year’s demand and, thus, price projections of lower transportation fuels and crude oil have been a prominent theme since mid-summer, largely due to slowing global economies and stagnant manufacturing demand for distillates. As markets near the end of the shoulder season and look towards higher demand for heating, a few seasonal themes are emerging.

Overall, the carry market structure in the paper/futures market has flattened throughout the forward curve, with minimal backwardation developing, thus pointing to near-term well-supplied distillate markets heading into winter. As for gasoline, each of the last few years, December has marked a bottom in prices for the subsequent year’s driving season, which typically peaks near July 4th.

Themes we are closely watching:

• OPEC delays crude oil production increases until spring 2025 furthering efforts to stave off lower prices
• U.S. manufacturing has continued to stagnate over the last two years, the longest contraction dating back over 30 years. Given that 75% of all distillate fuel consumption is linked to manufacturing-related industries, a return to manufacturing (ISM) expansion in 2025 will be needed for prices to rebound.
• China, the world’s most significant crude oil importer, economy will need to show sustained signs of recovery to outlast any near-term price spikes due to monetary stimulus.
• Near-term – large institutional crude traders increased bullish bets to the highest level since October.
• Iran sanctions will be increased under the Trump administration
• The new 2025 energy and regulatory framework impact on prices is yet to be determined
• Headline risk to return as potential tariff increases could result in escalated trade disputes

Price levels of interest:
WTI must close and stay above 65.30, HO 2.15 and 2.0775, and RBOB 1.85. If crude oil were to fail and close below 65.30, it would open the door for a $52-57 range. This would inherently drag down diesel, heating oil, and gasoline prices.

Action advice 

The forward distillate curve is flat throughout 2026, which we view as a good opportunity to start laying off fixed price and forward demand. Given OPEC has delayed crude oil production increases for the next 4 months, supply balances will remain tighter for longer, supporting prices, while we expect distillate demand to rebound in 2025 with a recovering manufacturing sector finally.

Post holidays, we expect price volatility to increase significantly, allowing our team to help you navigate and make the best decisions for your business.

Want to help your business navigate the current market? Get started with your Shipley Energy Advisor today!

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