Market Update: August 2017
Energy Procurement Market Update: August 2017
Temperatures in the energy intensive PJM and ERCOT regions recorded near normal for the month of July and a bearish forecast for the first two weeks of August have led to an unusual soft patch during an historical firm period. Despite the current bearish conditions, summer is only half over leaving plenty of time for a return of summer volatility.
Although natural gas storage continues to be in an over supplied condition, weekly storage injections have lagged both last year’s and the five year averages through the injection season.
The current supply surplus continues to contract with a current inventory of 2.990 Tcf which compares to 3.292 Tcf last year and a five year average of 2.879 Tcf.
The power market has mirrored natural gas as it should. With an exception of a handful of mildly volatile days, the power market has shown to be less sensitive to hot weather, a condition similar to last year’s market. For this reason, partially hedged index strategies continue to outperform fixed strategies.
The US rig count continued to expand in July, increasing to 958 in the week of July 24 vs last year’s count of 463. This steady increase in drilling activity will continue to act as a buffer to future volatility.
Despite what appears to be a benign outlook, we continue to believe the market lows have already been set and the path of least resistance for a measurable market move continues to be to the upside. This is due to an anticipated steepening in the demand growth curve. Virtually all factors effecting demand are trending upward. This includes a strong economy, generation demand, increasing industrial productions and continued growth in Mexican and LNG exports.
For larger clients, NJGEC continues to believe a hybrid, block & index, strategy will continue to deliver the most favorable budgetary impact. Fixed products continue to sit near multi decade low levels and offer attractive budgetary protection. For clients attracted to fixed products, we recommend extending terms 36 – 48 months to lock in at extremely attractive rates that will provide both short and long term savings.