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Energy Buying Strategies in a Volatile Market

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Per this week’s Energy Market Update, I have provided some energy buying strategies in the current volatile market.

Market Overview
Natural gas futures seem to have found a new range during the month of May. Prompt Month natural gas futures moved between $3.10 and $3.80 per MMBtu during the winter, but then rallied through the spring, and the result has been a new, higher range ($3.90 and $4.40). Cold spring weather caused increased heating demand and a growing storage deficit, resulting in the upward price trend. But, weather and gas storage trends were more favorable during May and prices relaxed somewhat.

The other big change in price levels during May has been the shape of the long-term forward curve. During April, near-term prices moved up while long-term prices were stagnant and eventually, we saw a very flat forward curve where near-term prices were slightly above long-term. This is very unusual. On April 29, the 12-month Strip was at $4.49 and Calendar Strips 2014-2017 were all below that price. But, since that date, near-term prices have fallen, as weather and storage have improved and long-term bullish news on LNG exports, combined with other factors, have pushed long-term prices higher again. The details are in the numbers below:

(all prices are in MMBtu)
Prices as of 5/29/13 and % change since 4/11/13.

Prompt Month $4.18 -0.04
12-Month Strip $4.28 -0.07
Calendar 2014
$4.32 +0.06
Calendar 2015
$4.40 +0.03
Calendar 2016 $4.54 +0.18

Posted: June 05, 2013