(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my June 12th Energy Update, I discussed the progress of rebuilding supplies, and said persistent warm weather continued to delay the building of supplies and explained how it could affect Natural Gas and Electricity prices. Unfortunately, NOAA is forecasting warmer than normal weather will continue into July, and Natural Gas supplies will remain far below where they need to be for this time of the year.

Based on NOAA’s weather forecast, by mid-July Natural Gas supplies are estimated to remain more than 500 Bcf below the 5-Yr. Avg, and it is now a virtual certainty we will start the winter heating season with below average supplies, which increases the risk of higher prices. And if we experience a colder than normal winter Natural Gas and Electricity prices are positioned to increase substantially.

 
The good news is due to a market phenomenon called “Backwardation,” hedgers can still secure rates below present levels in the forward market. Backwardation occurs when nearby contracts sell at a higher price than contracts further out.

Below is a summary of the present backwardation in Natural Gas:

Present – $2.92 per MMbtu
Apr 2019 – $2.65 per MMbtu
Apr 2020 – $2.55 per MMbtu
Apr 2021 – $2.51 per MMbtu

The price of Natural Gas is lower in the forward markets, and astute hedgers understand the old proverb, “A Bird in the Hand is Worth Two in the Bush” is as true today as in the 16th century and will benefit by reserving rates longer-term while they are below nearby rates, and not delay hoping for lower rates in the future.

This is especially true today when over the last 18 years rates were higher nearly 95% of the time over where they are presently in the forward market:

Conclusions:

No one can absolutely predict the future, but with rates in the forward markets lower than where they were nearly 95% of the time over the last 18 years, and with supplies far below the 5 Yr. Avg., it would be wise for hedgers to secure rates now.

Not every client’s risk tolerance and hedging strategy is the same, but we trust the above report will help you put into perspective the risk/reward opportunities now. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

 

Ray Franklin
North American Energy Advisory
Senior Commodity Analyst

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my May 17th Energy Update, I said cooler than normal weather in April increased heating demand for Natural Gas, while in May warmer weather increased cooling demand and the combination slowed the rebuilding of supplies.

I pointed out as of June 1st, Natural Gas supplies were expected to remain approximately 519 Bcf below the 5-Yr. Avg., and supplies would need to increase weekly 23.6 Bcf more than the 5-Yr. Avg. from June 1st thru Nov 2nd to return to the 5-Yr. Avg.

In today’s report, I update the progress of rebuilding supplies, and explain how persistent warm weather is continuing to delay the building of supplies and why it may affect Natural Gas and Electricity prices.

Unfortunately, for most of the country, the warmer weather in May continued into June, which has hindered the rebuilding of Natural Gas supplies.

Based on NOAA’s weather forecast, I have summarized below an estimate of Natural Gas supplies from June 8th thru June 29th compared to the 5-Yr. Avg.:

As you can see in the above summary, by June 29th Natural Gas supplies are expected to be approximately 509 Bcf below the 5-Yr. Avg. therefore, supplies will need to increase weekly 28.3 Bcf more than the 5-Yr. Avg. from June 29th thru Nov 2nd to return to the 5-Yr. Avg.

Continued warm weather in June worsened an already precarious Natural Gas supply situation, and it is highly unlikely supplies will increase weekly 28.3 Bcf over the next 18 weeks and finish the injection season near the 5-Yr. Avg. therefore, the risk of higher Natural Gas and Electricity prices continues to increase.

Conclusions:

No one can absolutely predict the future, but as seen in the chart below over the last 18 years rates were higher than present levels nearly 95% of the time, and with supplies far below the 5 Yr. Avg., hedgers will be wise to secure rates near historical lows:

Securing Natural Gas and Electricity at present levels assure hedgers budget certainty at a low cost for long-term planning in one of their major cost centers.

Not every client’s risk tolerance and hedging strategy is the same, but we trust the above report will help you put into perspective the risk/reward opportunities now. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

 

Ray Franklin
North American Energy Advisory
Senior Commodity Analyst

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On Saturday, May 5, team member Chris Griffin was killed in a tragic auto accident. Chris spent more than a decade with our team, at North American Energy Advisory and with the newly-formed Energy Professionals. Over the years he matured from a hesitant customer service rep to a confident, knowledgable and trusted energy advisor to his clients. Most of all, he was a beloved and integral part of our team. Not only was he one of my top Energy Consultants, he was also one of my best friends. He is greatly missed. The following is a remembrance from Energy Professionals President, Jim Mathers.

You have spent over 24,960 hours with us and that was just not enough time.
We feel grief and we feel the grief of all your friends and family members.
Over the past 12 years, you were not just a co-worker or an employee. You were and will always be family to us too.
We will miss you, NOT because of your stellar production year after year. We will miss you because of your winks, your smile, your loyalty, your advice, your care, your great attitude, your quiet way of getting things done, your wild and funny comments and your willingness to always help.
We love you Chris and we all miss you.
Your family always and forever,

North American Energy Advisory & Energy Professionals, LLC

PS- You were and always will be the only person allowed to call the ladies “sugar” and get away with it.

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my April 23rd Energy Update, I said the winter draw of supplies normally ends by March 31st and the injection season (building supplies for the next winter heating season) runs from April 1st thru Oct 30th. But this year we experienced cool weather well into April, which increased heating demand for Natural Gas and supplies declined into late April, which is unprecedented.

I pointed out as of Apr 20th, there were 28 weeks remaining in the injection season ending Friday, Nov 2nd. and supplies were approximately 519 Bcf below the 5-Yr. Avg.; therefore, Natural Gas supplies needed to increase weekly approximately 18.5 Bcf more than the 5-Yr. Avg. over the following 28 weeks to return to the 5-Yr. Avg.

In today’s report, I summarize the progress of rebuilding of supplies, and how the continued delay in building supplies may affect Natural Gas and Electricity prices.

After experiencing cooler than normal weather in April that increased heating demand for Natural Gas, we are now experiencing warmer than normal weather in May, which is increasing cooling demand and inhibiting the rebuilding of supplies.

Below is NOAA’s 8 to 14 Day Outlook thru May 30th:

If NOAA’s forecast is correct, as of June 1st, Natural Gas supplies will remain nearly 519 Bcf below the 5-Yr. Avg. Therefore, Natural Gas supplies will now need to increase weekly 23.6 Bcf more than the 5-Yr. Avg. over the next 22 weeks to return to the 5-Yr. Avg. by Nov 2nd

The delay in building suppliers faster than the 5 Yr. Avg is making it more difficult for Natural Gas supplies to return to the 5 Yr. Avg during this year’s injection season, which is increasing the risk of higher prices, and a warmer than normal summer will result in a significant shortfall of Natural Gas supplies prior to this year’s winter heating season, which will likely lead to much higher Natural Gas and Electricity prices.

 Conclusions:

No one can absolutely predict the future, but as seen in the chart below over the last 18 years rates were higher than present levels nearly 95% of the time, and with supplies far below the 5 Yr. Avg., hedgers will be wise to secure rates near historical lows:

 

Securing Natural Gas and Electricity at present levels will assure hedgers budget certainty at a low cost for long-term planning in one of their major cost centers.

Not every client’s risk tolerance and hedging strategy is the same, but we trust the above report will help you put into perspective the risk/reward opportunities now. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
North American Energy Advisory
Senior Commodity Analyst

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my April 23rd Energy Update, I documented the present supply levels of Natural Gas and explained why the delay in building supplies increases the risk of higher prices during this year’s injection season.

Normally the winter draw of supplies is completed by the end of March and the injection season (building supplies for the next winter heating season) runs from April thru Oct. But this year we experienced colder than normal weather in April, which increased heating demand for Natural Gas and supplies declined into late April, which is unprecedented.

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The North American Energy Advisory recently merged with Energy Professionals to form one of the largest Energy Consulting Firms in North America combining 2 firms with proven track records, which have been chosen by Exxon Mobil, Fastenal, Johns Hopkins, National Vision and the City of East St. Louis as one of their energy consultants.

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my April 2nd Energy Update, I discussed the ramifications of cooler than normal weather continuing into mid-April, which further tightened supplies. In today’s update, I discuss the present state of Natural Gas supplies and explain why the delay in building supplies increases the risk of higher prices during this year’s injection season.

Normally the winter draw of supplies ends by the end of March and the injection season (building supplies for the next winter heating season) runs from April 1st thru Oct 30th. But this year we experienced cool weather well into April, thereby increasing heating demand for Natural Gas and supplies continued to decline into late April, which is unprecedented.

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my Mar 12th Energy Update, I said the average temperature in March would be cooler than normal, and supplies would end the winter heating season at the upper end of the previously estimated 15% to 20% range below the 5 Yr. Avg. In today’s report, I discuss the ramifications of cooler than normal weather continuing into the middle of April, which further tightened supplies, and why a Natural Gas rally has been delayed.

Normally the winter draw of supplies ends by the end of March and the injection season (building supplies for the next winter heating season) runs from April 1st thru Oct 30th. But this year very mild weather in March continued into the first half of April, thereby increasing heating demand for Natural Gas and the supply situation worsened. Every Thursday, the EIA, reports the amount of Natural Gas in storage as of the previous Friday.

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my Feb 19th & Feb 26th Energy Updates, I point out since 6/9/16, we held above key support near $2.50 per MMbtu and would likely end the winter heating season with supplies 15% to 20% below the 5 Yr. Avg. I said anytime you can purchase a commodity near the lower end of its long-term trading range with supplies significantly below the 5 Yr. Avg., it was prudent to do so, and in today’s report, based on recent data, I will reiterate the same point.

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(My reports focus on Natural Gas as it is the largest energy source for the generation of Electricity; therefore, Natural Gas and Electricity are highly correlated.)

In my Feb 19th Energy Update, I said when a market holds key support in the face of negative news it is signalling the path of least resistence is for higher prices.Therefore, I continue to believe, Natural Gas and Electrcity are buying opportunities near present price levels. The key support level I referred to is near $2.50 per MMbtu, and Natural Gas has held above this key support level since 6/9/16:

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