How Summer Forecasts are Heating Up the Energy Market

Summer heat waves are setting in across the United States. And according to the outlook, it’s going to be a hot one. Bullish weather forecasts predict above average temperatures blanketing the United States in summer 2018. 

“Given the already verified weather for the start of May, and the forecast through the remainder of the month, we are set to check in the 2nd hottest May on record nationally,” reports meteorologist Beau Gjerdingen of Direct Energy Business. “Additionally, most forecasts for this summer point towards warmer-than-normal temperatures nationally, keeping cooling demand running well above normal.”

For most businesses, hot weather means air conditioners, refrigeration equipment and cooling units will be working hard to keep up. Over the course of days, weeks and months of summer, this leads to higher energy loads individually and across the grid. Such summer demand largely contributes to electricity and natural gas price hikes across the country. Factor in tight natural gas reserve margins, grid sensitivity to hot temperatures, and the likelihood of infrastructure failures due to short circuiting and reactive power, and it’s a recipe for energy market spikes. 

If you’re keeping an eye on forecasted market pricing, it’s something you’re already seeing. According to Strategist Tim Bigler of Direct Energy Business, “Above normal summer forecasts in the southern U.S. are leading to increased prices and volatility in CME Henry Hub futures market.”

NYMEX natural gas prices have increased across the board, soaring to the highest settlements in nearly four months, and ticking upward toward $3.00. 

Weather is critical, as always, to energy prices, so you should continue to watch out for the impact of higher-than-average summer heat and hurricanes. For large customers on a fixed price, higher prices may be inevitable, so it’s important to have a strategy to deal with risk. For large customers on a managed solution, consider the advantages of layering and hedging to mitigate price risks.

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