Oil Price Collapse is Supportive of Natural Gas and Power Pricing

Article by Commodities Management Group

During Constellation’s April 2020 Energy Market Intel Webinar, Constellations Retail President Mark Huston and energy market experts talked about the steps Constellation is taking to support customers during the pandemic, as well as providing COVID-19’s impact on the U.S. economy and on the energy market.

How Constellation Continues to Support its Customers

To kick off the webinar, Constellation’s retail president, opened the webinar discussion with information on how Constellation is working to support customers in the current COVID-19 environment.  Mark noted the importance of communication with customers on issues pertaining to load, load management and expectations relative to when and how the economy gets turned back on.  Mark discussed the financial resources of Constellation, and how Exelon, our parent company, has a strong balance sheet and credit rating, offering a measure of stability as an energy supplier.

He noted that Constellation would honor its commission agreements with its channel partners, albeit, that partners will be paid when Constellation is paid, and he wrapped up with some points about the importance of business continuity and how Constellation has performed well on behalf of its stakeholders throughout this difficult time.

Updates on the Economy and the Power and Gas Markets

Chief Economist Ed Fortunato then gave an overview of the economy and recent developments at the federal level. He discussed recent macroeconomic analytics surrounding gross domestic product (GDP), the potential for deflation during the coming year and the difference between economic “stimulus” versus economic “sustenance.” He outlined some of the technical and physical elements behind the collapse of the crude oil market on Monday, setting the stage for an overview of the effects of negative oil pricing on gas and power markets.

The pulverized oil market is accelerating a near-immediate response in the supply of natural gas, potentially chopping down as much as 8 billion cubic feet (Bcf) per day of gas production in the month of May alone. This rate of decline in natural gas production would be two to three times more than what was forecast just a week ago and represents a significant plank of support for the natural gas market in 2020 and 2021.

A Look at Demand, Production and Storage

The team looked at the differences between the global crude oil market and the domestic natural gas market relative to demand for the product. The global crude oil market is very susceptible to COVID-19 as a very large portion of oil goes to fuel transportation. Domestic natural gas, on the other hand, has very little exposure to a rise or fall in transportation demand. Additionally, demand for natural gas for power generation is unchanged in 2020 on a year-to-date basis despite the economic impacts of COVID-19.

Relatively strong demand for natural gas coupled with the potential for a steep cut to production in the month of May are some of the key reasons why natural gas and electric power prices are up over the past several weeks in the teeth of the greatest collapse in the history of the oil market.

The team also looked at current natural gas storage inventories at about two trillion cubic feet and posited that there is ample storage in the near and mid-term to accommodate the market.

To watch the webinar video or download the PDF, visit our webinar resources page.

To stay updated on these topics and more, join us in May for our next Energy Market Intel Webinar on May 20, 2020, at 2:00 p.m. ET. In next month’s webinar, we will update our views on economic conditions, the status of COVID-19 shutdowns, gas and power market fundamentals, as well as provide our first look at a summer 2020 weather forecast.