Energy Market Update

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September 2023

Edge Insights energy experts are constantly monitoring energy market conditions in order to help ensure the best possible pricing and contract terms for our clients. The following report is a snap shot of current conditions intended to help our clients stay informed of market dynamics.

Market Overview

Natural gas and electric markets are showing an increase in volatility as expected entering the fall season. The number of wells producing natural gas only has declined from 166 last year to 113. Natural gas is a byproduct of the oil extraction process, and oil production has been strong, which helped support natural gas storage level for this coming winter. The natural gas cash price at the Henry Hub in Louisanna has been in the $2.60 to $2.80/Dth range since spring.

The EIA.gov is forecasting this could slowly move up in 2024 to the $3.30/Dth area, still very good compared to 2021/22 market prices. Our concern, however, is that the current lower market pricing and reduced well counts could possibly lead to less supply in 2024, and push prices higher than forecasts. We’ll be watching oil drilling activity and supply closely.

Saudi Arabia cut 1 million barrels of oil production per day last month and had recently announced that they will extend the cut through the end of the year. Western Texas crude oil has been trading above $85/barrel and is forecasted to trade at or above $90/barrel in early 2024.

The weekly U.S. oil production report has indicated an 800,000 barrels per day production increase in response to the Saudi cutbacks. It’s still early to tell if this is enough to control the current price uptick. Also, we’re seeing the inventory of heating oil about 2.5 million barrels below the 5-year average as consumers prepare for an El Niño influenced winter.

El Niño winters are difficult to forecast. What we know is that it usually causes cool and wet conditions across the southern U.S. with the occasional Polar Jetstream dipping down over the Great Lakes. The potential for Nor’easters to occur with heavy snow results when moist southern air is pulled up the coast mixing with a cold Jetstream.

This chart shows the natural gas NYMEX Futures historic to current market average strip prices.

Electric Market 12-month average prices for current and future years shown in the chart below.

Natural Gas Storage Update

The storage report for week ending 9/8/23 shows an injection into storage of 57 Billion Cubic Feet (Bcf). This puts levels above the 5-year average by 6.8%, and 16.1% above the same week last year. The current percentage of total capacity is 74.5% at 3,205 Bcf.

The September natural gas Monthly Settlement Price (MSP) was determined on Aug 29th, at $2.556/Dth, up only 6.4¢ from the prior month.

The chart below shows the natural gas storage levels going back 24 months.

Other Energy News

Excerpt from 9/7/23 Short Term Energy Outlook

Renewable capacity additions tend to occur at the end of the calendar year and so affect generation trends the following year. We forecast U.S. generation from renewables other than hydropower will increase by 22 billion kWh in 2023 (up 4%) and by 91 billion kWh in 2024 (up 14%).

Market Opportunity

Contract purchase rating is good, with the lowest prices for the shorter terms. Longer terms will provide cost protection at a premium. Evaluating your risk tolerance will be necessary to determine the best terms for your energy purchases.

The market opportunity is a ranking of how we perceive timing of contract purchases for natural gas or electric. Information provided by the Energy Division of Edge Insights, Inc.

August 2023

Market Overview

Temperature forecasts are still showing above-average temperatures through August. Influence of a strong El Niño has altered the lower Jetstream and is keeping the heat across the southern states. A benefit of the El Niño pattern is that it will help reduce the landfall of hurricanes into the Gulf due to strong upper atmosphere wind shear. Less disturbances from tropical weather will help to keep wells open and producing oil and natural gas.

After an extremely volatile 2022, market prices dropped substantially during the unexpected warm January and February, and the near months are now trading below the out years. Over the past few weeks, the strip prices for 2025 through 2027 have also moved down. The extreme heat across the south has stressed the electric grid this summer, however the growth of wind and solar helped to offset the impact.

Saudi Arabia decided to extend oil production cuts of 1 million barrels per day through September or longer if they want. Russia to cut 300,000 barrels per day at the same time. This means higher oil prices and, of course, gasoline prices will follow. This will also impact the ability of the U.S. to replace stock in the Strategic Petroleum Reserve (SPR) until it makes financial sense to do so. A reduction in the U.S. credit rating is not going to help.

This chart shows the natural gas NYMEX Futures historic to current market average strip prices.

Electric Market 12-month average prices for current and future years shown in the chart below.

Supporting the electric and natural market, the EIA projects that gas storage levels through end of this year will decline to near the 5-year average. This will add upward pressure to market prices later in the year. Looking our further, the chart below shows the gas storage levels are projected to be above average which should help control costs and protect from an extreme price run up.

Natural Gas Storage Update:

The storage report for week-ending 8/4/23 shows an injection into storage of 29 Billion Cubic Feet (Bcf). This puts levels above the 5-year average by 11.2%, and 21.4% above the same week last year. The current percentage of total capacity is 70.5% at 3,030 Bcf.

The August natural gas Monthly Settlement Price (MSP) was determined on July 27th, at $2.492/Dth, down $0.111/Dth from the prior month.

The chart below shows the natural gas storage levels going back 24 months.

Other Energy News:

Temperature forecasts for the upcoming winter show near normal for December, and slightly warmer for January through March. NOAA does not expect a repeat of the extreme warm conditions we experienced the first few months of 2023.

Market Opportunity

The market opportunity is a ranking of how we perceive timing of contract purchases for natural gas or electric. Information provided by the Energy Division of Edge Insights, Inc.

May 2023

Market Overview

Energy prices have dropped for a few reasons listed below:

Europe’s demand for our LNG (Liquid Natural Gas) exports have eased due to high storage levels and expectations of ample supply for winter 2023-24. This past winter’s warmer temperatures across the entire EU helped substantially.
Early this year, temperatures here at home were well above normal also, allowing for our domestic gas storage to be 22% above last year’s levels.
Gross natural gas production is running about 3.35% above last year, with feed gas to LNG exports up 1.75%. This will allow for storage levels to increase at a good pace over the coming weeks.

The normal price movement based on supply and demand did not come into play during the first ten months of the Russia / Ukraine war. We always had enough gas here in the U.S. for our needs, yet the market became completely over-bought. Natural gas costs reached the $9/Dth (Dekatherm) area, and profits for LNG were astronomical, selling at over $60/Dth at import terminals in the UK and Netherlands.

The chart below shows the natural gas NYMEX Futures historic to current market average strip prices. The nearest months are now well below the out years. Because the out years are higher, producers will be able to secure longer term contracts. We expect natural gas prices to slowly rise towards the end of 2023 and continue through next year.

This chart shows the natural gas NYMEX Futures historic to current market average strip prices.

Electric Market 12-month average prices for current and future years shown in the chart below.

Natural Gas Storage Update:

The storage report for week-ending 4/28/23 shows an injection into storage of 79 Billion Cubic Feet (Bcf). This puts levels above the 5-year average by 22.2%, and 35.4% above the same week last year. The current percentage of total capacity is 46.7% at 2,009 Bcf.

The May natural gas Monthly Settlement Price (MSP) was determined on March 26th, at $2.117/Dth, up $0.126/Dth from the prior month.

The chart below shows the natural gas storage levels going back 24 months.

Other Energy News:

WTI Crude Falls 4% As Economic Fears Trigger Selloff

By Julianne Geiger – May 02, 2023, 10:30 AM CDT

Crude oil prices were sent tumbling on Tuesday morning, with WTI falling below $73 per barrel, with Brent falling below $77 per barrel on jitters about the economy.

Oil futures are set to finish out the day on Tuesday at their lowest levels since the end of March as the market looks toward the Fed’s next policy decision.

WTI for June delivery (CLM23) fell $3.12 (-4.18%) on Tuesday by 10:45 a.m. to $72.56 per barrel. Brent crude oil for July 2023 delivery (BRNN23) fell $3.07 (-3.87%) per barrel to $76.24.

New data from China—the world’s top crude oil importer—on Monday revealed rather disappointing manufacturing activity data, which could play an important role in global oil demand. Add to this disappointing data the U.S. banking catastrophe and the fear of yet another Fed rate hike later this week, and the conditions are perfect for jitters and profit-taking while the getting was good.

All of the gains seen from OPEC’s surprise production cut announcement that the group made at the end of March have now been completely dissolved. OPEC+ agreed at the end of March to cut another 1.6 million barrels per day from its production quotas beginning in May. The news sent shockwaves into the oil market, and prices rallied. WTI spiked above $83 per barrel on the news.

Hedge funds and money managers sold off 87 million barrels in the seven days leading up to April 25 as 35 million barrels of Brent, 19 million of WTI, and 13 million of gasoline, 6 million barrels of diesel, and 14 million barrels of gas oil, according to Reuters, for a drop in combined position to 447 million barrels, down from 534 million barrels a week prior.

By Julianne Geiger for Oilprice.com

Market Opportunity

Contract purchase rating is good, especially the nearest terms. The market has now moved into contango with the years further out trading slightly higher. Short-term energy contracts are considered a bargain, however, longer terms will provide cost protection in an unstable market.

The market opportunity is a ranking of how we perceive timing of contract purchases for natural gas or electric. Information provided by the Energy Division of Edge Insights, Inc.

Note: Our clients have the option of purchasing 100% of their electricity from renewable sources, such as wind and solar. Speak to your Edge Insights representative for more information.

Benchmarking electric and gas consumption will let you quantify your energy efficiency efforts. Talk to your Edge Insights account representative to learn how you can start a “Green Initiative” program for your business.