February 2017 Newsletter
- Volatile prices are a result of volatile weather and balanced supply and demand
- After hitting a five year low in March 2016 wholesale natural gas prices have been higher each and every quarter since
- After two weeks of much above normal temperatures what will the rest of winter look like?
- Wholesale electric prices have been volatile as well. They tend to run very parallel to natural gas. However, long-term electric values are still trading at a significant discount to current 12 month rates
As we continue through this winter of arctic blasts one week and records high temperatures the next we will likely continue seeing price volatility continue. Key questions remain: what will natural gas storage levels be at the end of winter? How cold or warm will the remaining months of winter be? And very importantly, how balanced is the natural gas production in the U.S. versus the natural gas usage and export demand in the U.S.? The last half of January was much above normal relieving the concern that storage levels were below 5 year averages for the first time in years after having two arctic blasts early in the winter. Even if we see a return to more normal temperatures for February and March, natural gas prices are likely to stay in a tighter trading range. Only if there is an extended below normal temperature plunge will we likely see price volatility increase.
Many electric customers may ask why they should care about natural gas prices. Natural gas and electric prices run in close parallel with each other. Natural gas is a much more publicly traded commodity on NYMEX and thus is the key price driver of the two. Therefore, it’s very important to understand how natural gas is trading to better understand the trends of electric prices. Two and three year natural gas prices are trading at a discount, the same goes for electric. The vast majority of both natural gas and electric customers are buying fixed rates for 2, 3 and even 4 years as they look to meet or beat current prices, take advantage of low energy prices and stabilize and lower energy expenditures.
Read January 2017 Newsletter
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