The Kobiona Monitor

Volume 1 / Number 10
September 18, 2019

Kobiona’s leadership has enlisted the help of our Market Intelligence Desk to craft this monthly publication to share major market dynamics impacting future power and gas prices. As every client’s situation is unique, we encourage you to review market movements with us to decide whether any action on your part could serve to lower your future costs or avoid known, coming increases.

Oil Prices Spike Following Drone Attack on Saudi Oil Facilities
What are believed to have been drone attacks over the weekend on Saudi Arabian oil production facilities took nearly 60% of the country’s daily exports offline on Monday, about 5% of the world’s crude production.

As a result Brent crude jumped nearly 20% in early trading, then finally settled at $68.70, up 15% on the day. October WTI (West Texas Intermediate) closed Monday $62.48. Prices for both fell on Tuesday on news that production may be return to normal sooner than originally estimated, in just two to three weeks.

A true energy crisis in the Middle East, if on the horizon, would provide longer-term price support for U.S. natural gas (and therefore power prices) which have been hovering close to historic lows throughout much of 2019.

A shock like this to supply can lead to seemingly disproportionate market responses with additional ‘risk premiums’ priced in due to uncertainty. This situation is far from over and will likely play out in different ways the next few weeks to months, if not longer.


Since natural gas is now the primary fuel source for power plants across the U.S. and  prices closely correlate to power futures, we monitor natural gas supply and demand fundamentals very closely.

Prompt Month Prices
NYMEX prompt month (October) closed Tuesday at $2.66/MMBTU. The snapshot below paints the story of the last month, the slow and steady rise as we inch toward winter – a technical rise unrelated to the event in the Middle East. Power prices have climbed in tandem: power futures for this winter are $5-7/MWh above the lows that held for much of the year.

NYMEX Prompt One Month Lookback 

Source: Nasdaq

Dry Natural Gas Storage
In bearish news, the EIA reported inventories finally crossed 3 TCF (3,019 BCF) in its September 6th report. This brings stocks to 393 BCF above levels this week last year, and narrows the deficit to the 5-year average to only 2.5%. (Reminder: Inventories were 33% below the 5-year average last November.)

Who Wants to Bet on the Winter?
Early winter forecasts coming from various vendors are predicting, “the winter is unlikely to be normal.” Examining snow pack, water temperatures and the amount of ice in the sea, one camp sees an extremely cold winter in the cards (including the Farmers’ Almanac) and another sees a much warmer-than-average winter. Obviously the former would eat away at natural gas storage reserves (where we have a healthier supply than last year but no surplus) and drive prices up and the latter would produce a gas glut and potentially drive prices down even further that the historic lows we enjoyed in 2019.

In the meantime, be sure to enjoy these above-average temps the next few weeks!

Questions?
For those tasked with procuring power and gas for the first time — or the tenth time — the industry can seem overwhelming with densely-technical and sometimes conflicting information. We welcome your questions on how to apply our observations, as well as your feedback on The Kobiona Monitor. Please share how we can make this publication more useful by calling us on 844-209-7972, or contacting us via email, info@kobiona.com.