energy market update

Pre-Budgeting Energy Market Update

Natural gas is testing the key $3.00 level on the upside driven by both news and fundamental factors.

Despite lacking the ability to rally on bullish weather conditions and inventory data throughout the summer, which created a state of complacency, the market has now caught a wave to the upside at a calendar point historically associated with market softness.

My take on this is twofold.

  1. Recent news events linking fracking to increased seismic activity highlighted by recent earthquakes in Oklahoma which resulted in state mandated reduction in fracking waste water injection. This past Sunday’s, “60 minutes,” piece on the Oklahoma man induced earthquakes presented a strong case supporting the theory that Fracking waste water injections are causing severe increases in seismic activity in many areas where fracking is being conducted. This has led me to ask myself the, “what if”, questions regarding fracking. In this case all potential answers point to higher pricing and possibly extremely higher pricing. This is why I was not surprised to see the $0.10 rally in Monday’s secession.
  2. The market finally digesting severity of price induced production drops. Throughout this historically hot summer, it was easy to connect the low inventory build to heat induced generation burn. Now that cooling demand is waning, the bears are looking more healthy storage injections leading to lower prices. Although it is still early, inventory injections continue to be anemic. I must confess that I have been in this camp. Although I am not yet throwing in the towel on a fall market move to the down side, my confidence has been greatly shaken.

So, how does this impact energy procurement strategy? While contemplating my answer I recall an old saying from my Wall St. days, “Bulls make money; Bears make money; and we all know what pigs make!”!! Therefore, I feel this is not the time for complacency. Historically, prices remain extremely attractive and there is much more price risk to the upside than the down side. For those in the bullish camp, it’s a great time to put on long term hedges. For the bears like myself that think they may be smart enough to pick the bottom, please remember, “no one can outsmart the market!” I suggest putting on at least a 30% hedge. Being 70% right is much better than 100% wrong.

For those in the process of budgeting for 2017, I hope this information is helpful and don’t hesitate to contact NJGEC at 973-287-7797 with any questions and a complimentary pre budget consultation.