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Energy Market Update: June 27, 2019

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Is it counterintuitive to think about winter prices while we wait for summer to hit? Maybe, but it never hurts to be ahead of the curve. Direct Energy Business Strategist Tim Bigler shares his insights for winter pricing on this week’s Energy Market Update.

 

Between November and March, natural gas often prices often spike — that’s a given. NYMEX winter “strips” describe the five-month-period from November to March, and serve as a measure of natural gas prices on the New York Mercantile Exchange over the coldest months of the year. They are, of course, futures contracts, and their five-month duration means they measure the average across those months.

The broader trend to be aware of when it comes to these price indices is that the market has shifted from a pattern or normal backwardation — in which today’s prices were more expensive than prices in the future — to a contango model. In contango, futures cost more than current spot prices for the same commodity, indicating that buyers may be placing a premium on not having to buy the commodity today.

Factors influencing this trend include high export levels (and high supply), both via pipelines over the Mexican border and liquefied natural gas shipped overseas. The 19-20 winter strip is enjoying a particularly favorable price relative to recent years. We should note that a support at $2.70 (per Million Btu) appears to be holding, for now, for the 21-22 and 22-23 winter strips; prices for later winters are somewhat higher, but have stayed relatively stable this year.


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Posted: June 27, 2019

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