ERC Price Benchmark Trends Week Ending: October 21, 2016
Moving to a December 2016 prompt month, the Energy Research Council national average benchmark price for retail electricity held steady last week at $0.0746 per kilowatt hour (kWh). Prices in several states, however, did shift somewhat. In Texas, the average benchmark price jumped 1.5% last week to a level 4% higher than a month ago. By contrast, prices in Rhode Island and Maine declined by 1.5%. In most states, the benchmark price for electricity is right where it was four weeks ago. Across deregulated markets in the U.S., the average benchmark price for retail electricity last week ranged from $0.0429/kWh in Texas, to $0.0999/kWh in Massachusetts.
Long-term electricity contracts (36-60 months) were favorably priced last week in Maryland, New Jersey, New York, Pennsylvania, and Texas. Long-term prices in most other deregulated markets carried a premium, compared to 12- and 24-month contract terms.
Short-Term Price Benchmark Trends
The November NYMEX natural gas contract was down 9.85% last week to close at $2.99/mmtbu, the lowest close since prices shot above $3 in the first week of October. From a technical perspective, the current boundaries for gas futures are now around $3.015/mmbtu on the resistance side and $2.865/mmbtu on the support end.
As I pointed out last week, the recent spike in natural gas prices to a two year high of $3.37/mmbtu on October 13th was not supported by fundamentals and last week’s decline is consistent with that fact. We have yet to realize any of the colder-than-normal temperatures that have been forecast for this winter. The current weather outlook calls for slightly warmer temperatures over the first half of November followed by a very mild second half of the month. As the end of injection season nears, the market is looking for signs of cooler weather to spur withdrawals. But signs of an early winter have yet to develop, and the market is getting anxious. Add to this the election on November 8th and its potential impact on regulation and natural gas prices going forward. All of this is creating uncertainty and volatility in the market. Until a cold winter kicks in and the elections are over, we could see wide swings in natural gas prices.
Long-Term Price Benchmark Trends
It is important to note that the recent drop in natural gas prices are related to a November 2016 contract. Most of the decline is due to an absence of cold winter weather and heating demand. The market apparently still anticipates a colder-than-normal winter as future calendar strip pricing has not declined much at all. Calendars 2017 and 2018 are only down a penny while Calendars 2019 and 2020 are up a fraction of a cent.
With rising natural gas prices, rig counts are up, reaching 105 active natural gas rigs week ending October 14th. Nationwide, production has increased 0.75 Bcf/day week-over-week, as pipeline maintenance activities are wrapping up in preparation for the beginning of winter. Natural gas storage remains at a 1% surplus to last year’s historic levels, and increasing production, coupled with weak heating demand, could push storage numbers up to their record 2015 level.
James Moore, Ph.D., is CEO of the Energy Research Council (ERC). He has been CEO of several research companies, including TDC, a subsidiary of International Thomson; Highline Financial, a Thomson-Reuters company; and Mentis Corporation, which was acquired by Gartner Group. He has also served as Executive Director of The Global Futures Forum, an international think tank, and as Managing Director of Gartner Group’s Global Financial Services practice.
* ERC electricity price benchmarks are derived by: 1) aggregating daily matrix prices issued by many electricity suppliers across General Service tariff rate classes for each electric utility; 2) averaging each utility’s price benchmark together for a state-level benchmark; and 3) averaging state-level benchmarks across five business days to create weekly average price benchmarks, based on next month’s start date, for commercial customers with an annual usage of up to one million kWh. The high level of correlation between matrix and custom pricing makes ERC price benchmarks a reliable measure of how prices are trending, and the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P and Dow measure the rate and direction of change in stock market prices over time.
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