RD Energy Newsletter:  December 2018

December 2018 Energy Update

 

Key Conditions

  1. Natural gas prices rose $3.185/MMBTU to $4.715/MMBTU from November to December.  Approx. 47% in one month
  2. Natural gas prices are trending higher than anytime in 2015, 2016 or 2017
  3. Weather driven demand is up substantially year over year
  4. The natural gas storage deficit that has existed since last winter is the key underlying driver of the recent price volatility and sudden rise in prices when November turned colder than normal in the Midwest and Northeast
  5. Many variable priced natural gas and electric consumers are hedging their volumes to protect against even higher prices later this winter

 

Commentary

Price volatility has returned to the wholesale markets from a long hibernation.  Prices will now rise and fall, sometimes with great extremes, as temperature forecasts show colder weather or moderate weather in the weeks ahead.  One positive point is that the bulk of the volatility and price increase is for the January – April 2019 months meaning that long-term fixed rate offers for natural gas and electric are still reasonable and attractive.  However, a long cold winter that makes the storage deficit even worse will make prices next spring and summer more expensive.

The latest December temperature forecasts are showing slightly above normal temperatures for 2 of the first 3 weeks allowing for prices to retreat some.  However, two things might give support to prices: 1. Many variable priced large energy consumers are now hedging supplies to protect against even higher prices later this winter 2. Due to the current storage deficit and the fear that it will worsen if we do get a cold winter, utilities are buying more day to day supplies to prevent using more storage this early in the winter.

Predicting the weather in the winter is always a critical concern for energy traders and buyers.  Now meteorologists have potentially found a new phenomenon to predict the weather: Sunspots caused by magnetic storms on the Sun’s surface, or more importantly, the lack of sun spots.  The theory is that the fewer the sun spots the colder the winter will be in large parts of the northern hemisphere.  The Sun for this winter is sun-spot free otherwise known as a solar minimum.  If the theory holds true, then the chances are very good for cold frigid air dropping down from the arctic this winter.


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