The Kobiona Monitor

Volume 2 / Number 11 November 24, 2020

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.

Thank You + The Big Picture
First, we want to sincerely thank all of our customers for your business and attention to energy markets this year; we appreciate how much you have competing for your time. We hope the holiday next week affords you some well-earned time off to relax.

As we look back on 2020, gas and power futures hit 20-year lows in early March, and slowly crept up until a reversal at the start of November. Due to an oversupplied fuels situation entering the winter accompanied by warmer-than-average temperatures across the U.S., we now find ourselves in a falling futures market.

The past several years winters have produced the best buying opportunities of the year. Last year that slide persisted from December through late March. Therefore, we strongly encourage all energy buyers to schedule a 30-minute annual check-in before year end to establish targets for your next buys, regardless of contract end date. Our clients who take this approach tend to end up with a long history of declining budgets over time — the best anyone can do in this energy game!

Schedule a 30-Minute Check-In: https://kobiona.com/contact-us


Spot Natural Gas Retreats Under $3  

After hitting a 20-month high of $3.35/MMBTU in late October, by market close on Thursday November 19th the NYMEX natural gas prompt month closed at $2.59/MMBTU. Power futures have been following along, the 12 month strip coming off over $5/MWh ($.005/kWh) in New England for a December start since November 1st.

Source: Markets Insider

 

Key Driver to Reversal: Lack of Demand
The biggest factor driving prices downward is a lack of demand for heating across the U.S. in November, a traditional shoulder month that can go either way weather-wise. At present, November is on track to be the third warmest since 1950. When November is mild we can see the start of a sell off. Even more critical is December: should the first two weeks of December continue to produce above-average temperatures, the sell off could easily continue.

Source: NOAA

 

Injections Continue Into November; Storage Surplus Shrinks, Again 
In November we typically see natural gas shift from injection to withdrawal season. The past two weeks we have witnessed injections instead due to a lack of demand — rare but not unheard of.  That said, the overall storage picture since the Summer has been a shrinking surplus.

As of the EIA’s November 13th report, stocks stand at 3,958 BCF – 231 BCF (or 6.2%) above the 5-year average. You may recall earlier in the year analysts projected storage might finish injection season close to 4.1 BCF. The surplus to 5-year average has shrunk from 15% in August to just 6.2% now, despite modest on-going injections. Inventories remain in the 5-year range but the buffer above it is gone.

 

Demand – and Future Prices – Hinge on COVID Vaccine 
Besides a cold winter, economic recovery from COVID — likely through the widespread distribution of an effective vaccine during the next six to nine months — is the most bullish factor that could drive up prices in 2021 and 2022. Goldman Sachs looked at the impact of a vaccine on various industries concluding, “Energy is the top sector in terms of sensitivity to news of a COVID-19 vaccine.”

Proof of that is the rise in prices across fuels following the announcements of promising (>90% effective) late-stage trials at both Pfizer and Moderna. If any of the numerous vaccines in development make it to distribution, with some looking more promising than others, we’ll be sitting in a much different energy situation a year from today.

 

 

 

Source: Goldman Sachs, Constellation

 

 

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.