Key Drivers 
- July was extremely hot this summer in the U.S. – very high consumption of NG in power generation
- U.S Natural gas storage deficit heading in the wrong direction. Looking to be the lowest deficit in many years.
- U.S. natural gas production is slowly increasing – will higher volumes hit the market before winter?
- There are fewer speculative traders having a financial appetite at these high prices making price volatility even worse
Commentary
It has been a very hot summer in the U.S. July was extremely hot. With coal supplies priced above natural gas at a $13/MMBTU equivalent price we saw no natural gas to coal switching. In fact, coal inventories at power plants are at or near a record all-time low so ramping up power generation fueled by coal couldn’t happen if they even wanted to. In July we also saw natural gas weekly injections into U.S. storage fields plunge to abnormally low levels. This has reduced the level of natural gas expected to be in storage heading into winter. The U.S has total natural gas storage capacity of around 4 TCF. Last winter we started the winter season around 3.6 TCF. Right now are on pace to enter next winter at 3.36 TCF. Due to all of this it’s not surprising to see August natural gas NYMEX settle last week at $8.687/MMBTU. By comparison August 2021 settled at $4.044/MMBTU. As we head into the first week of August we’re seeing some cooler temperatures in the Midwest and Northeast, a little more daily natural gas production numbers showing up in the data reports and some slightly higher oil and natural gas rig count activity. We saw prices dip Monday morning, but was back up in the afternoon. As we’ve seen repeatedly as of late every price dip that happens is short lived as brief lower price optimism is shrugged off quickly and energy prices push higher. By mid-week higher temperatures in the mid-west will be going above normal for a few days and then again will return more seasonable the second week of August. If the second half of August turns hot again, as forecasters expect, we could easily see prices spike higher again. Of course we are entering the heart of Hurricane season these next few months. The rain from hurricanes can cool down parts of the country helping lower power demand, which is good for energy prices, but storms in the Gulf of Mexico can shut down and sometimes damage drilling platforms and equipment hurting and slowing down the oil and natural gas production capability and thus hurting supply. Lastly, price volatility can easily go to the extreme as fewer speculator traders are taking active trading positions. Due to the very high energy prices, very high margin calls along with the higher cost of money it takes to participate, those trading natural gas and electric futures as well as trading actual wholesale supplies need to have very strong financial statements and a ton of available cash. As the number of traders step out from actively trading to watching on the sideline, those remaining has the ability to push the market much more easily to the extreme.
With so much price volatility in the electric and natural gas wholesale markets occurring each day, we at RD Energy continue to closely monitor price trends looking for price dips and buying opportunities for our clients. We are extremely pleased of the fact that we have very few clients actually needing to buy right now in this very high priced energy climate. We are proud of the fact the majority of our clients have energy supply contracts in place extending out into the future at various levels. Our hope is that the supply and demand imbalance that currently exists comes back much closer into balance and brings wholesale prices back down substantially before renewal time. As a RD Energy client please feel free to call or email us anytime to get market updates, pricing or to check on your supply contracts. We work hard to reach out to each and every one of our customers well ahead of their contract renewals with price updates, buying strategy discussions and market trend analysis.