(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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