This week’s energy market update involves factors influencing pricing and demand. Here’s what you need to know:
Weather and Demand
The cool weather pattern is expected to persist for another week, keeping the market steady. While there has been a slight upward movement in prices, we haven’t seen any dramatic swings. The forecast indicates one more cold front over the next 6-10 days before conditions begin to ease.
Natural Gas: Supply Dynamics
Record Production: Last week saw intense production levels, exceeding 105 Bcf—the highest since the beginning of 2024. If this trend continues, we may see downward pricing pressure.
Future Pricing: Interestingly, most future years are pricing close to the current year, a departure from recent trends. Some electricity suppliers even offer longer-term agreements at more favorable rates than short-term ones.
EIA Natural Gas Storage Report
Nautral Gas Production
NYMEX 12-Month Strip
ALL ABOUT THE NYMEX TWELVE-MONTH STRIP
• The NYMEX Twelve Month Strip is the average of the upcoming 12 months of closing Henry Hub natural gas futures prices as reported on CME/NYMEX.
• A futures strip is the buying or selling of futures contracts in sequential delivery months traded as a single transaction.
• The NYMEX Twelve Month Strip can lock in a specific price for natural gas futures for a year with 12 monthly contracts connected into a strip.
• The average price of these 12 contracts is the particular price that traders can transact at, indicating the direction of natural gas prices.
• The price of the NYMEX Twelve Month Strip can show the average cost of the next twelve months’ worth of futures.
• The NYMEX Twelve Month Strip is also used to understand the direction of natural gas prices and to lock in a specific price for natural gas futures for a year.
LNG Demand
LNG demand remains high, hovering near 15 Bcf/d. This sustained demand creates upward pressure on pricing as it reduces domestic supply.
NYMEX ROLLING PROMPT MONTH (chart)
Recommendations
1. Eliminate Premiums: Your top priority should be eliminating premiums and fixed pricing, as these represent unnecessary costs.
2. Consider Variable Strategies: Work with a variable strategy to minimize premiums.
3. Managed Products: For clients considering managed products, we advise:
– Locking up on-peak hours for the upcoming summer
– Implementing a small 25-50% hedge for next winter
Following these strategies can optimize your energy costs in the current market conditions.