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Tag: COVID-19

Independence Day: The Natural Gas Market

Posted on by m.usman@jjtestsite.us

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The only thing that could make 2020 more unbelievable would be massive alien saucers hovering over major US cities. COVID-19 continues to linger, election rhetoric is heating up, and NYMEX Natural Gas just broke the record for its LOWEST MONTHLY PRICE SETTLEMENT IN 25 YEARS. With the July contract settling at $1.495/MMBtu, preconceived notions about this market have been shattered, and we face the rest of 2020 with a high degree of uncertainty. Can Will Smith swoop in and end this alien-like hold the bearish fundamentals have on this market? To be determined, but what is certain is that this natural gas market is sending up fireworks of the likes never seen.

2020 was supposed to be the year of growth for all things natural gas. Growth expected on the demand side from electric power burn, liquefied natural gas (LNG) exportation, and pipeline exports to Mexico. Growth in production expected to make up for the new demand. Rather, what we have seen is a COVID-19 induced, massive decline in nearly every fundamental. LNG is down 70% from projections, production down 10% and industrial demand down almost 20% has given us a slowly balancing but still over-supplied market. This supply glut hangs over the global natural gas market like an ominous flying saucer and poses a serious financial risk to all that dare oppose it.

So, what of this pricing record? Last week we saw a massive injection of 120 BCF of natural gas into storage, exceeding expectations and all previous norms. This event, coupled with the fundamentals discussed, and moderating weather forecasts last week, pushed the NYMEX July contract to a low of $1.432 before settling last Friday at $1.495. This is the lowest settlement we have seen since the August 1995 contract that settled at $1.49 (a year before the cinematic classic we call Independence Day was released in theaters). These are price levels previously believed unreachable in our modern market. This bearish confluence of events has moderated, and we have now seen a rebound in the August contract to $1.70 on forecasts of a top 5 hottest July.

In many ways, the NYMEX Natural Gas market is a victim of its own success. The ability to quickly and cheaply produce natural gas has pushed producers to sell at rock-bottom prices. These market prices are unsustainable for long periods of time without irrational factors at play, but there has yet to be much rationality in the year 2020. In a way, maybe the crude 1990’s cinematography and plot line of aliens coming to harvest the earth for its natural resources is a believable analogy for this natural gas market. Will the market shake out by winter? We have our predictions, but for now, we are left waiting for the rest of this market/movie to unfold.

Confidential: Choice Energy Services Retail, LP.

Light at the End of the Tunnel

Posted on by m.usman@jjtestsite.us

By: Chris Amstutz

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Opinions are circulating that 2020 has been the worst year ever. Extreme maybe, but the roaring 20’s is certainly off to a rough start for the country (and natural gas price outlooks). The good news? The light at the end of the tunnel is in sight. For two months now we have been in the Tunnel of Terror (as we mentioned in our last blog), and only now are a few trends popping up. COVID-19 restrictions are easing, allowing people to emerge from their Netflix/Hulu/HBO binging solitude. This is allowing for a clearer outlook on the fundamentals affecting the NYMEX natural gas market. Are we out of the tunnel of forecasting despair yet? Certainly not. Expect more records to be broken before we reach the end of this madness. More good news? We are nearing an advantageous time to save your business money through the strategic management of your energy procurement.

Looking Back into the Darkness

Stay at home orders may be boring, but following the markets has not been. The volatility witnessed in the last 2 months has been unlike anything seen in our lifetimes. Here are some of the records that have been broken pertaining to the natural gas market:

  • Record low daily temperatures for half of the U.S. on May 9th.
  • The WTI May oil contract went negative on April 20th for a -$37.63 settlement.
  • Unemployment sits at 14% nationally, and the Fed Chairman warns this could rise to 25%.
  • Several projections have the natural gas storage level breaking the record high of 4,047 billion cubic feet (BCF) by November.
  • The streak of 76 trading days of NYMEX prompt under $2 was broken on May 5th but has since fallen back below the mark.

Looking Forward for the Light

The glimmer of freedom and summer bliss has been revealed to many recently. As we learn more about COVID-19, the implications ripple through energy market fundamentals and ultimately prices. The dark tunnel of uncertainty has become a little brighter. Here are some ongoing trends we expect will continue to affect the natural gas market:

  • All but 5 states (NY, NJ, CT, MI and MA) have begun some sort of reopening measure. It may be 2 more weeks until any state has fully opened all businesses.
  • Non-weather demand for natural gas has fallen. Industrial demand is expected to slowly recover as the economy picks up, but it may not be until 2021 for exports to recover. Liquified Natural Gas exportation (LNG) has led the way with only 60% of capacity utilized in May, falling to potentially 45% by end of summer.
  • Production could fall as much as 5% in 2020. This is a substantial drop but has recently been less than the fall in demand we have seen, maintaining the short-term bearish market. A recovery in oil prices could keep this loss of production from being fully realized.

The adage of “volatility creates opportunity” is certainly at play here. Any business that can look forward for the light at the end of this virus-induced tunnel will benefit from an experienced energy market consultant. The twists and turns we have seen recently have been extreme and gone are the days of passive procurement management. Through Choice Energy Management’s analysis of market fundamentals and historical trends, even the darkest of tunnels can be illuminated. While uncertainty still abounds in the NYMEX Natural Gas Market, feel free to reach out to a Choice! consultant today regarding your business’s energy management options.

Confidential: Choice Energy Services Retail, LP.

Energy Markets in the Tunnel of Terror

Posted on by m.usman@jjtestsite.us

“There’s no earthly way of knowing.. which direction we are going.. there’s no knowing where we’re rowing.. or which way the river’s flowing”

Oh how fast everything can change in our new modern world! A month ago we were innocently dissecting theoretical outcomes of political energy agendas, and now we are quarantined in our homes listening to others debate whether “the economic cure is worse than the disease”. We digress back to the energy markets, and back to the early 70’s when Gene Wilder in Willy Wonka and the Chocolate Factory was entertaining those going through the first OPEC oil price shock. You cannot help but laugh when watching the famous “Tunnel of Terror” scene thinking in context of what has occurred in 2020 so far. Energy markets have experienced a supply shock from OPEC, a demand shock from COVID-19, a wealth shock in the stock market, AND a credit shock from bank lending, all in a matter of 4 weeks. The fact is that any one of these shocks is capable of sending a well-informed business into chaos, but all 4 together is ludicrous. So before you throw your hands in the air and irrationally exit the psychedelic, tunnel-of-terror riverboat, lets dissect this situation, and ride this crazy boat to the golden geese on the other side.

WTI Crude

  • Down 63% since 2/20/20 to $20.
  • OPEC, Russia and US producers all continue maximal oil production, even as oil demand has dropped an estimated 20% year over year due to COVID-19.
  • Diplomatic and pandemic news will be the only short-term catalyst for this market. Watch for the US to first make a diplomatic and then a potentially stronger economic approach with Saudi Arabia, as many lawmakers have already accused them of “Economic warfare”.

Economy

  • Dow Jones down 25% since 2/20/20 to 22,000.
  • Congress has approved a stimulus package and this will look to curb economic uncertainty fears.
  • The Federal Reserve has taken unprecedented action to ensure credit doesn’t tighten, even as board members predict “scary” outcomes of 30% unemployment.

NYMEX Natural Gas

  • NYMEX Prompt down 15% to inflation adjusted all time low of $1.634.
  • The May contract could fall further if we see a decrease in quarantine-driven commercial demand and continued below average weather-driven demand.
  • The calendar ’21 strip price has risen 15 cents off the bottom, potentially due to decreased production outlooks.

Power Prices

  • Summer 2020 ISO Power Prices are down 20-30% nationwide.
  • New York is reporting power demand 5% below 2019 weather-adjusted levels.
  • ERCOT has seen no clear impacts to demand at this time but the ’20 summer strip in Texas is coming down from all-time highs.

Energy Sector Health

  • The Dallas Federal Reserve energy sector vitality survey hit its lowest score recorded in its 4-year history.
  • Optimism is low from energy producers at current price levels.
  • If the current situation persists longer than 4-6 months, we could see producers go bankrupt.  This disruption would send current supply levels lower for Oil and Natural Gas.

Policy Update

  • As of last declaration from President Trump, COVID-19 containment protocol is recommended to stay in place through April 30, meaning demand destruction and general uncertainty could continue for another month.

If Choice! Energy Management had floated the idea of all of these events occurring simultaneously two months ago, we would have been branded crazier than the idea of a magic chocolate factory. There is no historical event to compare this situation to and the energy markets were already in uncharted waters. For this reason, it could be an opportunistic time for businesses with the means to capitalize on future market positions. A black swan type event, like what we have seen this past month, reinforces the idea of needing a sound energy risk management action plan in place for a business. The gamble is too large. While current events have depressed commodity prices (generally good for businesses), it is no longer impossible to imagine a scenario where prices rise and cost businesses billions in unprotected energy costs. Balancing a businesses risk tolerance with sound fundamental and technical knowledge of energy markets should be the golden goose your business seeks to attain. At Choice! Energy Management we pride ourselves on leading our clients through all energy landscapes (no matter how ominous). Please feel free to reach out for energy help during these trying times, and above all else, look out for each other on this crazy river boat ride we call life.

Confidential: Choice Energy Services Retail, LP.