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Market Summary: 30 Dec 2013 – 03 Jan 2014

The following is a summary of last week’s market activity and the market outlook:

  • Most of the market’s focus right now is on the extreme cold for early this week that will impact the Midwest to Texas to New England. Expect spot gas and power prices to spike. New England was near $240/MWh for Jan 4, eastern PJM and the lower New York zones have also spiked to over $130/MWh, while western PJM and western New York prices are dramatically lower (as low as $50/MWh). ERCOT is also seeing the impact of the cold, with day ahead prices into the $70/MWh range and real time prices spiking to over $5,000 for today.
  • The NYMEX saw volatility last week but is not reacting strongly to current weather because the 6- to 10-day forecast is calling for above-normal temperatures for most of the U.S. Last week, the Prompt Month dropped 19 cents on Tuesday amidst light trading but regained about half of that loss on Thursday.
  • On Friday (delayed due to the holiday), the EIA reported a withdrawal of 97 Bcf, which was below expectations and below historicals. Current inventory through Dec. 27, 2013 is 2,974 Bcf, which is 562 Bcf (15.9%) below last year and 289 Bcf (8.9%) below the 5-year average. Large withdrawals this winter will increase demand during the summer for storage refill, so short-term weather can impact prices for the balance of 2014. For the long-term, storage impact is negligible, which is why prices for 2015 and beyond have not followed.
  • Prices for the remainder of 2014 continue to trend with the Prompt Month, while prices for 2015 and beyond continue to ignore Prompt Month trends. Last week, long-term Calendar Strips rose while the Prompt Month fell.
  • From a strategy perspective, not much has changed over the last few weeks. For the near-term, unless you need to buy, you may want to observe the volatility. If you must buy now, don’t panic but rather identify market trends after the current cold snap ends. Beyond the winter, keep in mind that long-term prices are still in their recent price range and may present value, as the long-term premium versus the near-term has shrunk.
  • NEW ENGLAND UPDATE: There has been ongoing extreme volatility for both gas and power prices. Spot gas is ranging from $7 to over $30/MMBtu, day ahead on-peak power is ranging from $40 to over $200/MWh, and January prices are strong, reflecting significant risk premium.