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Monday, 26 July 2021 13:16

RAIN ACROSS DEREGULATED MARKETS IS KEEPING TEMPERATURES DOWN AND POWER AND GAS MARKETS STABLE. DEMAND IS STILL CAUSING PROMPT MONTH GAS MARKETS TO BREAK THROUGH THE $4.00 PRICE HANDLE FOR THE PROMPT MONTH.

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THIS IS CAUSING VOLATILITY TO ALL CUSTOMERS ON SHORT TERM VARIABLE RATE CONTRACTS.  THE FORWARD GAS CURVE CONTINUES TO BE STABLE, PROVIDING GREAT OPPORTUNITIES TO LOCK IN PRICE FOR LONGER PERIODS OF TIME.

Prompt month natural gas contract ended the week up big (10.5%), and ended the trading week at $4.06 / MMBtu. The 12, 24, and 36-month contracts were also up big in percentage terms, settling the week at $3.77; $3.42; and $3.20 / MMBtu respectively.  The forward natural gas curve signifies a great time to lock in your retail power and gas prices for longer stretches of time.  Spreads between short- and long-term natural gas forwards are getting wider, and continue to support the decision of locking your retail power and gas rates for longer stretches of time.  Allow your ESCO supply company to work for your business or residence, and manage market volatility with fixed price contracts for term length.  Variable rate contracts do not offer price protection (or value) in my own opinion.

New gas storage levels came out on July 22, 2021 for the week ending July 16, 2021.  The overall storage level ended the week at 2,678 / MMBtu, a weekly increase in the system of 49 MMBtu.  Natural gas storage levels are 6.2% below the 5-year average, and 16.6% below the levels seen 12 months ago.  Keep in mind that this is storage in the system.  There are still ample supplies of natural gas in the ground that has yet to be tapped by producers.

Variable rate plans are meant to be pegged to an index that are not necessary tied to the prompt month gas trading levels (keep these market movements in mind when evaluating comparable billing periods!). Wholesale based pricing products are leaving the ERCOT markets as many consumers and law makers saw these products as a contributor to the market chaos brought on by extreme weather conditions across Texas. While pass through components such as capacity and ancillary services costs have come up, the commodity itself remains in check.  As a customer, you have the choice to decide who holds the price volatility risk.  Protect yourselves with fixed price contracts.  Those customers who elect a variable rate plan are 100% exposed to price volatility driven by weather and other market conditions.  Allow your supply company to do their job and manage the volatility by offering you a fixed price contract.

It’s hot outside, real hot.  However, cooling degree day averages now back to their historical norms for the week in the deregulated markets we track. Hot weather leads to increased HVAC usage and power demand which translates to market volatility.  Attractive opportunities are in the market for customers to hedge out price volatility.  Keep the risk where it belongs, with your well-seasoned energy supply partner.  This is not a risk that customers should be exposed to.

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Chip Wilkinson

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