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Energy Market Update: May 30, 2019

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What’s going on with natural gas storage? It’s been an area of concern over the last couple of years, with storage levels hitting historic lows in certain regions. New projections, however, suggest that storage could work to the benefit of buyers. Direct Energy Business Strategist Tim Bigler connects these dots on this week’s Energy Market Update:

 

Last year was certainly a low year for natural gas storage. The EIA, which charts natural gas storage levels across the lower 48 states, recorded levels of about 1,753 billion cubic feet for this month; compare this to the 1,616 BCF levels recorded last May. That’s a significant improvement.

However, both figures run well below the 5-year-average levels for May, which the EIA estimate at 2,027 BCF. The positive news is that market projections for 2019 have storage levels drawing closer to the 5-year-average as the year goes on, which suggest that the storage situation may finally be improving overall.

How is this situation affecting prices?

While storage does not always directly drive prices, in this case it’s worth considering the relationship. If projections for storage levels have 2019 breaking away from the concerningly low pattern we witnessed last year and hewing closer to the five-year average, that would cause prices today to sink relatively low, correct?

A NYMEX price trend analysis shows exactly that. Compared to recent trading prices, the cost of gas futures today is (for the most part) below the 15th percentile, and in some cases even below the fifth percentile. In other words, the cost of gas is lower today than it has been 95 percent of the time (in the case of futures for Q3 and Q4 of 2019 and Q1 of 2020). And when it comes to 2021 and 2022 prices, today’s quotes still only run in the 25th - 30th percentiles. $2.50/MMBtu continues to act as a price support for now, but it seems plausible that optimistic projections for storage are driving levels lower and lower, particularly in relation to where they have tended to stay over the last five years.

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