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Energy Market Update: July 24, 2019

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It has been a buyer’s market for electricity this year, with prices dropping consistently almost across the board. Something changed this month, however – but is the new paradigm here to stay? Direct Energy Business Strategist Tim Bigler looked into it for this week’s Energy Market Update:

 

Here at Direct Energy Business, we don’t try to pick the top or bottom of the market. Instead, we identify trends and try to uncover the driving forces behind them. But prices can always go up, and they can always go down, no matter the apparent patterns. In recent months, we’ve covered the countrywide decline in electricity prices due to increased natural gas supply and improved plant efficiency. This month, however, around-the-clock electricity prices appear to have spiked in most regions, reversing the downward slide they’ve exhibited for most of this year.

Some of these upticks have not lasted long (prices in ERCOT, in particular, rose only briefly before dropping again), while others have ushered in new, sustained prices above the lows we saw earlier this year. But no matter what new pattern emerges, buyers should keep in mind the simple rule that price trends will only persist until the underlying forces that cause them cease. In other words: simply because a trend can be observed doesn’t mean that it’s going to last. Furthermore, there is the phenomenon of market elasticity to account for, wherein markets self-correct in response to aggressive moves by the market. This month’s price spikes may therefore be a direct response to recent lows.

So: where to now?

Hot weather and high oil prices could result in continued elevated prices, particularly in the Northeast; inexpensive coal could continue to keep prices relatively low in the ComEd region. However, it is unclear whether these price spikes are here to stay or whether we could return to the declining price pattern we’ve seen for most of this year. Buyers should keep in mind that working with a managed product team can mitigate uncertainty during such volatile periods.


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Posted: July 24, 2019

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