Key Drivers

1. Natural gas storage levels
2. LNG shipment cancellations
3. Natural gas production cuts
4. Oil price increases that could lead to the increase in natural gas production
5. The arrival of the AC season in the Midwest and northeast
6. COVID 19
7. Bull & Bear speculator traders: fighting for price trend supremacy

Commentary

 It’s worth repeating; we’re in uncharted waters in regards to the global and domestic forces pushing and pulling natural gas and electric prices.  With COVID 19, economies being shut down and restarted, oil demand and oil prices dropping and rebounding, and many more happenings, we are seeing fundamental changes in the natural gas supply and demand imbalance key drivers nearly every day.  These daily and weekly changes keep the battle between the Bulls and Bears constantly in upheaval as they push and pull prices resulting in increased price volatility.  As we mentioned in our May newsletter (linked below), we believe energy decision makers should try and understand the Bear and Bull facts of what is driving the energy price trends as much as possible.  It is also important to know when your current electric and natural gas supply contracts expire, what prices your business is paying, make sure you have a buying strategy in place and have a strong energy partner to help create and manage the strategy rather than basically guessing when to make the next purchase.  We say all of this not necessarily to put a commercial plug in for RD Energy, but to make the point that, if your “day” job is even more complicated now than before COVID 19, with all of the changes happening each day/week effecting the energy price trends, it is important to not make a  “point in time” purchase right before electric and natural gas contracts are up or buy from the supplier that happens to call at the right time.  Instead, have a energy coach/broker to help advise and implement a buying strategy built around current data and trends.  In the new normal business environment this has never been more important, which is why we continue to discuss this idea.  The forces of change are happening too fast and too strong to rely on guessing when to buy.

Natural gas NYMEX prices for the February 2020 – June 2020 5 month time period haven’t seen a massive change in price many expect.  February closed at $1.877/MMBTU, April $1.634/MMBTU and June at $1.722/MMBTU.  July is currently trading at $1.789/MMBTU.  On March 6th 2020 the calendar 2021 NYMEX average strip price for the 12 months was $2.27/MMBTU.  Today it’s trading at $2.63/MMBTU.  The average NYMEX strip for the 4 winter months of December 2020 – March 2021 is currently $2.845/MMBTU.  The average NYMEX price for the 4 months December 2021 – March 2020 is currently $2.764/MMBTU.  What are all these numbers telling us?  We think there are a couple of primary points to take from the numbers: First, although oil prices dropped dramatically, natural gas prices didn’t.  Yes they dipped in late March for April business, but have since rebounded.  Second, The winter strip price is up $.36/MMTU since March 6th and has been up even higher in the past month.  Everything we hear and read is telling us that there is a real fear of the country not having enough natural gas next winter with all the natural gas being turned off now at the well-head.  The same fears holds true for the entire calendar year of 2021 and beyond.

We do know that global demand for LNG imports from the U.S. has dropped.  Expectations are that 35-45 ships of LNG cargo will be cancelled for July delivery.  For the past few years the spot prices in the Asian and European markets has been high enough that selling LNG for a profit wasn’t a concern.  Now spot prices in these two markets are below the cost of getting LNG to them, so unless companies want to sell for a loss shipping to them won’t be attractive.  This means more natural gas needs to be absorbed by the U.S. consumption, U.S. storage or more well-head shuts offs will be necessary.  This potential over supply situation gives hope to the manufacturers holding out for a price plunge.  The questions remains will there actually be a price plunge?  If so, when will it happen?  What if prices dip for a couple of weeks and then reverse trend?  Can we react quick enough?  How will we know the dip occurs?  We expect that over the next few weeks we’ll likely see the highest storage injections of the summer season.  After that the hottest months of the year will be upon us and gas will be absorbed in electric generation.  The next opportunity for prices to drop substantially, if prices don’t dip in the next few weeks, will be in the September/October months as storage will be mostly full, AC cooling demand is lower and winter heating demand will not have begun.  We offer this warning though.  What if things develop globally and domestically that change expectations and price trends?  As we stated in the beginning of our newsletter, we’re in uncharted waters.  We like to offer out this idea to think about; if you can fix a price to start whenever your current electric and natural gas contracts ends within the next 3 years, would you be more disappointed if later you found out you could have bought the supply a little cheaper or more disappointed that you decided to wait to buy only to find out that the new price offers are substantially higher?  As always we’re happy to answer questions, help you analyze your supply prices and opportunities and help your company develop a strong energy buying strategy.