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Weekly Energy Market Update March 17, 2014

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Below is the Direct Energy Business Weekly Energy Market Update for March 17, 2014. While there is no market update video this week, the following is a snapshot of last week’s market activity and the market outlook.

The near-term markets were much less volatile last week--ignoring key fundamentals (weather & storage)--and closed down for the second week in a row. Near-term fell most (April futures $0.19 to $4.43/MMBtu and the 12-month strip down $0.15 to $4.50) while Cal '15 (down $0.01 to $4.24) and Cal '16 (up $0.03 to $4.22) were relatively unchanged. Conversely, there was increasing strength further out on the pricing curve--with Cal'17 up 5 cents, Cal '18 up 9 cents, Cal '19 up 14 cents, and Cal '20 up 20 cents--causing a reversion from backwardation to contango.

Futures as of 3/14/14 ($/MMBtu):       Change since 3/7/14 ($/MMBtu):
NG Apr 14       4.43                                 -0.19   

12-Month Strip4.50                                 -0.15   

NG CAL 15     4.24                                 -0.01   

NG CAL 16     4.22                                +0.03 

NG CAL 17     4.29                                +0.05

The EIA reported a withdrawal of 195 Bcf from storage for the week ending March 7, which was the largest-ever March withdrawal and was close to expectations. Current inventory is 1,001 Bcf, which is 958 Bcf (49%) below last year and 858 (46%) below the 5-year average. Storage inventories are on pace to finish the winter near 900 Bcf, which would be the lowest since 2003.

The Polar Vortex pattern continues to dominate the eastern half of the US, with weather forecasts calling for cold temperatures to linger over the Midwest and Northeast for the next two weeks.

The focus is shifting away from short-term fundamentals, with an eye still on storage refill and summer generator maintenance outages; however, volatility and price spikes are still possible - just not as likely as we move into the shoulder months and warmer overall temperatures. The market is now focused on the longer terms, as evidenced by the strength we saw at the back of the curve last week, although there is still very little news regarding LNG and EPA regulations, so long-term stability is not guaranteed.

Spring does not necessarily mean that near-term prices will fall. And, the lack of volatility in long-term prices and a backwardated curve may be an indicator of value but this is now changing, so the value may be slipping. This winter’s volatility is a lesson that all regions are vulnerable to price spikes, so it's important to be able to capitalize on value when its available (or ensure that you're able to weather volatility). For those still exposed to summer, it's time to carefully consider your summer hedging strategy.

Posted: March 17, 2014