Monday, Nov. 24, 2008

Is It Time to Go Longer for Electricity?

In last week's PowerNews, we provided a rationale for extending contracts longer if your natural gas contracts are expiring soon. The impact of current market pricing on future prices is significant and should be taken into account when you develop a long term strategy. We feel that if the market provides opportunities for long term savings, it is wise to get out the pencils and crunch away.

This week we take a look at the electricity market. Our assumption is that, with the natural gas futures strip at $7.098 per mmbtu (simple average), electricity futures should also be shining with value. Charles Myers, our database provider, provided us with data and graphs to illustrate our argument.

Chart A depicts the 12-month electricity future strips for 11/21/06; Chart B depicts the same for 11/21/07 and Chart C is the most recent strip chart.

The difference between the 2006 strip and the 2008 strip is $8.89; or 11%. The difference between last year's strip and this year's is $8.63; or 10.5%. With electricity strips selling at over a 10% discount when compared to the previous two years, it might make sense to lock in longer to benefit from today's lower than average prices.

Three Years of Electricity Futures Strips

Does this mean natural gas and electricity prices can't go lower? Of course not. Prognosticators are keeping their heads down in today's marketplace. However, it doesn't hurt to look over the horizon and try to take advantage of energy opportunities that provide real value going forward.

Another important market reality that we should be thankful for is that the rats have jumped ship. We are looking at energy markets sans speculators. Who knows how long we will be free of their manipulative behavior? So why not take advantage of prices that are trading relatively normally, free of those pesky speculators?
 
Natural Gas Storage News- Winter Threshold Reached
Due to warm weather during the report week, natural gas storage figures actually rose by 16 Bcf for the week. Inventories rose by 76 Bcf for the first two weeks of November, a very atypical situation. This puts reserves at 3488 Bcf, within 51 Bcf of the record set last year and 4.2% above the five year average. It would be surprising to see any more significnt additions very soon with the cold weather upon us.
Tank is Full for Winter

Natural Gas Market Watch- Intraday Prices Snapshot
Here are the intraday prices on the NYMEX electronic market this morning (Monday) at about 10:25 AM for the next five months($ per mmbtu, intraday prices):
Dec.-08 $6.687 +0.207
Jan.-09 $6.697 +0.194
Feb.-09 $6.722 +0.182
Mar.-09 $6.680 +0.165
Apr.-09 $6.630 +0.150
Natural Gas Futures:
PMC 30-Day, 90-Day, 12-month Natural Gas Futures Chart

Crude Oil Watch
The OPEC Basket Data price was down to $42.56 per bbl last Friday, Nov. 21, 2008.
West Texas Cushing traded up $1.43 this morning to $50.46 per bbl at 9:11 AM.
NYMEX Crude front month future is up $1.26 per bbl this morning to $51.19 at 10:08 AM.

Electricity Watch
The electricity markets are trending normally with a few unusual dips for the NYISO A and PJM recently. Review the historic trends for key electric markets in the Northeast with the Day Ahead Electric pricing data charts from the PMC database, updated every Monday.
 
Weather
NOAA's forecast indicates chilly weather for almost the entire Lower-48 for at least three weeks...
NOAA Forecast for Next Week
8-14 Day forecast
NOAA Forecast- 30-Days

Written and Researched by Martin Linskey; Energy Charts developed by Charles Myers.

Disclaimer: This information is provided for the use of our customers and potential customers. Power Management Company assumes no responsibility or liability for the accuracy or completeness of pricing or information in this document. Historical data was obtained from sources that we believe to be reliable, but we do not guarantee its accuracy or completeness. It is not intended to provide advice or recommendation. Views are subject to change without notice.