Infinity Insights-Volume 10, Issue 30
AT-A-GLANCE SUMMARY
Spot NYMEX natural gas (September) spiked $0.30 higher Monday to the amazement of virtually everyone.
SUMMARY OF THE LAST WEEK IN CHARTS
Spot month natural gas (September) has support at 2.00 with resistance at 2.30. Calendar year 2021 finds support at 2.75 with resistance at 2.90. Calendar year 2022 has support at 2.48 with resistance at 2.60.
Roadmap
NYMEX natural gas spot month (September) closed at $2.238, $0.439 higher versus the close of July 31st.
Calendar 2021
Calendar 2021 finished at $2.8075, ≤$0.12 higher versus last Friday.
Calendar 2022
Calendar 2022 settled at $2.555, ≤$0.025 better versus last Friday.
OUR TAKE ON THE MARKET
NYMEX Natural Gas
Spot NYMEX natural gas (September) spiked $0.30 higher Monday to the amazement of virtually everyone. It has continued to move up. After the fact, many reasons have been offered with varying degrees of probability. We have no better explanation so we’ll provide some technical observations.
Open interest has declined, suggesting short liquidation is part of story
$2 level is key support (what was resistance becomes support).
Forward curve values compliment bullish move
The dilemma that faces folks looking to procure natural gas and/or power is how does one manage risk in an “up” market? Winter is coming and, more importantly, so is the presidential election. No one seems to understand where the COVID – 19 pandemic leads us. We prefer to let others wear the risk of the unknown and counsel locking procurement.
WHOLESALE POWER
ERCOT
For those clients who meet the criteria of suitability and risk tolerance, we have recommended real-time pricing (LMP). Save for the spike last August, it remains the cheapest strategy for procurement. North Zone averages for 7×24 LMP rates are:
The average of 4-2/3 years is 26.06. We have found that LMP is correlated to spot natural gas. Directionally, natural gas looks higher. That muddies the water. Renewable generation would offset that given utility-sized storage. That’s not here yet but on the horizon. Our take is that short-term procurement with LMP is OK. Longer-term procurement given the current marks is best answered (again, for those whose risk appetite and load justify) by some combination like block & index.
PJM
PJM continues to move sideways, following natural gas. It is reasonable to assume that higher gas prices will yield higher power prices.