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Energy Market Update: November 29, 2018

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Why is it important to pay attention to natural gas? The price of gas fluctuates, which obviously affects anyone using large amounts of gas. But additionally, natural gas rates can influence the cost of electricity in states with deregulated electricity markets.

Here’s a look at what happened to futures prices in 2018 with an eye toward planning for 2019.

Lower Forward Heat Load Risk

Heat Load refers to customers who use between 65 and 75 percent of their total annual energy budget for natural gas in the first quarter of a given year.

Looking retroactively at futures contracts for each of the Q1 months, we can see that during late 2017 and most of 2018, natural gas futures for January, February, and March of 2019 were mostly in line with the price of futures for 2020 and 2021. In other words, the market expected prices to remain the same during heat load months in all three years.

However, in summer of this year, 2019 futures prices began to separate from the prices for 2020 and 2021. This was likely due in part to lower-than-normal storage levels and higher-than-average demand from the power sector over the summer. Then, as recently as early November, prices spiked; again, this could be due to low storage levels and very cold temperatures across most of the country.

As far as expectations for Q1 2019 are concerned, the market is experiencing a particularly volatile period. The question to ask is whether this could happen again next year. Customers who think low storage levels and weather conditions could continue to volatilize the market might see an opportunity to lock in a good fixed price in the near future, before 2020 prices begin to separate (if indeed next year follows this year’s pattern).

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Posted: November 29, 2018