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ISOs to Face Challenges as States Reopen

The June NYMEX contract began yesterday and is trading at $1.86. Meanwhile, the Jun 20 crude oil contract is up $1.94 at $17.00. As we move into May, the warm weather in the west and cool weather in the east keeps demand low. The EIA estimated working gas in storage as 2,210 Bcf as of Friday, April 24, 2020. This represents a net increase of 70 Bcf from the previous week. Stocks were 783 Bcf higher than last year at this time and 360 Bcf above the five-year average of 1,850 Bcf. At 2,210 Bcf, total working gas is within the five-year historical range.

Currently, 30 million American workers have filed for unemployment. The Trump Administration announced general guidelines for states to reopen their economies last week. As states start to enact orders for re-opening, this could present challenges to the ISO’s due to shifting demand and result in more index volatility. Equities markets settled down overall last week during a general rally that has lifted stocks from their recent 52-week bottom of late March.

Natural gas pricing plays a key role in electricity power pricing due to the increasing reliance on natural gas fired generators as nuclear, coal, and oil generation is retired and mothballed. As the marginal unit of generation, gas prices are directly correlated to power pricing (more so in some regions such as NYC vs. others such as parts of PJM). We keep an eye on natural gas market fundamentals in order to provide insights into forward power pricing for our clients. Gas production has grown and surpassed any speculation that production would not be able to keep up with demand due to LNG and Mexican exports.

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