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Market Update: Energy Procurement – November 2017

Summer’s Over, What Happened to Fall?

I guess it is now safe to say summer is finally over.  What I find surprising is the warmest October on record is being followed by a more winter like start to November. What happened to fall?

In last month’s update I mentioned how the never ending summer season extended the seasonal electricity cooling demand.  Which in turn muted the pace of natural gas storage injections. I also discussed how the tighter supply/demand condition could lead to potential volatility in the contract energy market this winter.   Especially in the event of a Polar Vortex.

Although it may feel a lot like winter, it would be premature to write off the fall season and declare an early start to winter.  However, I may have underestimated the market’s sensitivity to entering a winter season without the comfort of a supply surplus. Since the cutting of the Rockefeller Christmas tree in late October, natural gas has skyrocketed from the October low of $2.75 to $3.21 as of November 10th. That’s nearly 20% in about 10 trading days.  In my book, I’d call that volatility!

Examine the Facts

Now let’s not get into a panic and take a closer look at what exactly going on here. The Oct. low of $2.75 could partially be attributed the contract expiration and a measurable portion of the 20% run to $3.21 is a major short squeeze of traders that jumped onto the, “there will never be another cold winter bandwagon”.  Now that reality has set in, let’s examine the facts and determine where to go from here.

1: Winter is not here yet.  And furthermore a few cold weeks in November is not a signal of the coming of the next Ice Age!

2: Natural gas inventories stand at 3.860 tcf which is at the upper end of the five year range.  Which is not a bad place to begin the winter.

3: The long term forecasts are still pointing toward a normal winter.

4: The supply/demand balance has fundamentally changed to a more bullish intermediate to long term condition. And for the short term this condition could result in violent reactions to unexpected weather conditions.

Although the contract energy market has reacted to the current volatility in natural gas, power rates remain at historically attractive levels. I would view this current volatility as a shot across the bow.  And a potential signal of what’s to come: Higher rates. You do not want to have your bill exposed to expiring contracts, or un-hedged index programs.

Call NJGEC today for a complimentary Energy budget / utility bill and 3rd party supply contract audit.  That will address potential contract energy market exposure and help accurately project your 2018 energy budget.

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