February Energy Market Intel Webinar Recap
During Constellation’s February Energy Market Intel Webinar, principals from our Commodities Management Group (CMG) provided updates on changing weather drivers, energy market fundamentals and gave a brief look into the global crude oil market and how it can impact U.S. power and natural gas.
A decisive shift in late January led to milder weather in the East and cooler temperatures in the West. The blocking over Alaska in early January that sent record cold to the Great Lakes and into the Southeast gave way to warm air from the Pacific Ocean. The macro view on winter 2017/2018 is that January was colder than normal relative to population, February is coming in warmer than normal and March has a warmer-than-normal bias.
Warmer February temperatures in densely populated markets worked to ease the throttle on withdrawals from natural gas in storage over the past several weeks. This reduction in weather demand, along with production moving to new all-time highs of +77 billion cubic feet (bcf) per day, sent prompt-month natural gas future prices from a 12-month high to a 12-month low in a two-week timespan. The year-over-year natural gas storage deficit widened from 5 percent in early December to 30 percent by late January before narrowing again. It is currently at approximately 20 percent. This 20 percent year-over-year storage deficit provides a plank of support in the near-term natural gas market while rising production keeps a lid on the upside as we enter the low-demand Spring season.
The price of crude oil in 2018 and beyond could increasingly play a role in the U.S. natural gas and power markets. This year it is likely that the U.S. will become the largest crude oil producer in the world. Since June 2017, West Texas Intermediate (WTI or NYMEX Crude) crude oil prices increased 50 percent from the low $40 per barrel area to near $65 per barrel. All other things being equal, higher crude oil prices can place downward pressure on natural gas prices and subsequently power prices. Additionally, the U.S. wholesale crude oil market, at $60 per barrel, is roughly three times larger in total revenue than the natural gas market. This means that oil- and gas-producing companies have a lot more to gain chasing rising crude oil prices. As crude prices rise, they can become less sensitive to potentially lower natural gas prices. If crude oil prices weaken, that would build a plank of support for natural gas and power prices.
Don’t forget to join us on Wednesday April 18st for our next webinar where we’ll discuss weather updates, market fundamentals and potential implications of inflation for natural gas, power, crude oil and other commodities.