Infinity Insights – Volume 8, Issue 30
AT-A-GLANCE SUMMARY
Spot month NYMEX natural gas (September) found resistance in mid to upper $2.90s area after rallying last week.
SUMMARY OF THE LAST WEEK IN CHARTS
Spot month natural gas (September) has support at 2.86 then 2.76 with resistance at2.96ish. Calendar year 2019 has support at 2.77 with resistance at 2.85. Calendaryear 2020 has support at 2.60 with resistance at 2.67.For a look at our monthly market reports, visit Infinity Power Partner’s Market Overview.
Roadmap
NYMEX natural gas spot month (September) finished $0.002 higher at $2.946.
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What’s This? – The “Roadmap” is the price action chart depicting the NYMEX natural gas spot month. It’s important because it is essentially the trading community’s market sentiment.
Cal 19
Calendar 2019 went out at $28325, up ≈$0.015.
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What’s This? – “Cal 19” is the first complete 12-month strip. It gives you a visual of price action and provides a reference point for our take on the market.
Cal 20
Calendar 2020 settled ≈$0.002 at $2.658.
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What’s This? – “Cal 20” is the second complete 12-month strip. It gives you a visual of price action and provides a reference point for our take on the market.
OUR TAKE ON THE MARKET
Spot month NYMEX natural gas (September) found resistance in mid to upper $2.90s area after rallying last week. Some technical indicators show market is overbought, suggesting that a pullback is in the cards. Relationships (spreads) on the other hand, would indicate bullish sentiment. Volatility continues to be muted.
ERCOT Power
Prior to 2016, managing the financial risk of power price was THE issue facing procurement. The impact of feedstock cost (natural gas) drove decisions. While the realities of the production explosion were realized due to unconventional recovery (fracking) and prices has fallen dramatically, they hadn’t bottomed until early 2016 and have moved sideways ever since. There were wider differentials for calendar strips, year to year, but those eventually disappeared to the point that prices were flat (or just about). Spot prices still jumped around but had little to do with power pricing for all but the most aggressive loads (most procurement avoids front curve volatility). We see this pattern in the chart, below.
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As one might expect, wholesale power curves mirrored this flattening of prices. We note that recently, the deltas of calendar year values has opened up.
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While we can’t see the catalyst of this widening through natural gas action, we can see it in the fluctuating values of heat rates.
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Additionally, the price of real time power has reflected more volatility, due to “at the margin” generation (capacity - heat rates + spot natural gas volatility).
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We believe that this new world of continuing low prices is a result of the disappearance of a tight supply/demand balance of natural gas and the emergence of a plentiful supply that continues to grow. As time passes, new demand may reawaken supply questions. This in turn will likely change to some degree the current situation. We don’t know when this might occur or what such change might mean.The foreseeable future looks flat for prices, both natural gas and power. The importance of managing procurement risk has given way to peak demand management, time of use management, 4CP management, and issues surrounding onsite generation, storage, and opportunities and risk developing from these. Said another way, operational “things” are more important than the risks previously addressed in financial procurement. Times have changed: Adapt.