With most of the summer in the rear view, U.S. energy markets have started to look forward to the upcoming winter. Prices mostly trended lower throughout the spring and summer, ultimately bottoming out in August. Since then, financial short-covering and lingering cooling demand in the eastern U.S. have fueled a price recovery across the marketplace. While upside momentum appears to have subsided for the time being, the past month is a reminder just how quickly futures markets can change direction.
Weather is the primary driver of pricing during the winter, and as of late September, it is still unclear what the “consensus” forecast will be for the season. However, known factors such as rising exports of natural gas and new capacity to burn the fuel for power generation will mean that baseload consumption will be higher than ever. Meanwhile, natural gas production is growing slower than at this point last year due to unfavorable pricing and the general lack of major additions to pipeline capacity flowing from the Marcellus Shale.
This dynamic of demand growing faster than supply opens up natural gas and, subsequently, electricity markets for exaggerated weather-related risk this winter. We are recommending customers that did not take advantage of the historically low pricing in July and August to jump on the recent market pullback in order to lock in pricing and become isolated from winter price risk.