Key Drivers
- Weather forecasts – revised colder and warmer almost daily
- Dutch TTF gas futures for Europe and Asia trading 5X higher than U.S prices
- LNG exports to Europe and Asia
- 2021 rebound of U.S. natural gas production – moderate
Commentary
FACTS: Natural gas prices and therefore electric prices have jumped 200% since the end of 2020, which is over 350% since the 2020 NYMEX low point in July 2020. We also know that starting June 2021 each month natural gas NYMEX has closed for the next month higher than the month before. June 2021 settled at $2.98/MMBTU to begin the price increase and November settled last week at $6.202/MMBTU.
Price volatility is high day to day as traders digest new information that alters their view on price direction. New weather forecasts, new natural gas production data, daily LNG feedgas numbers as barges are loaded to export, and Dutch TTF price volatility currently running 5X higher than U.S prices to name a few. Plus, there’s also another very important fact: this phenomenal rise in U.S natural gas prices has been done at the same time as speculator traders have lowered their net long position to the lowest level in 15 months or July 2020 when NYMEX hit a low point of $1.49/MMBTU. What does this mean? It means prices are at this high level not because technical traders have squeezed the market up on weak legs that will suddenly plunge later when they decide to lower their long positions. In fact, just the opposite is true. The natural gas and electric wholesale markets are at these high levels at a time when it seems technical traders are sitting on the sideline waiting for some major bullish piece of news IE a Polar Vortex or some other substantial piece of news or data to bring them into the market place with a vengeance and drive prices up fast and furious.
We know Buyer’s in all types of situations. Those who are hedged for another year, two or more and aren’t very concerned with the higher prices since they feel time is on their side. We know others who have contracts coming up in the next 2-3 months also believing time is on their side and prices will plunge $2.00 or more before it’s time to buy. So many Buyers have the mindset that their next electric and natural gas contract has to be the same or lower than their current deal leading them to the mindset that they can’t conceive that the market won’t oblige them. Whether your supply contracts are up in a month or two, six months or in the next year it’s time to understand the new reality and look for a strategic approach to buying electric and natural gas. Waiting until your contract date to buy or wishing for something that isn’t reality isn’t a strategy. Contact us if you have questions or would like to start discussing a buying strategy that will work better long-term year after year than making a last minute decision and suffering the consequences and the possible effects on your energy budget. Energy costs are often a substantial part of your overall expenditures and product cost. Let’s figure out a plan together to minimize the budget effect and a more powerful buying strategy