Energy Market Update: May 5, 2023
A tug of war has been the story since mid-April with both market movement and basis. Look further down in this Energy Update for an explanation about basis. The upside started with basis in the drivers seat on April 20th. That trend continued through April 26th. The tide then turned to a heavy downside on basis and the market started turning down as well. Yesterday was the first up day we have had, minor but still an up day, and today the market is coming up strong, at the time of this writing distillate is up $.07 cents and gas is up $.06 cents. The conversation is that the market is oversold and due for a correction. Meaning buyers may want to jump in and take advantage of pricing.
Instead of fundamentals, it looks like headlines have spurred the market moves. The worries are demand connected to recession risks and challenges to the U.S. bank sector. Both the European Central Bank and the U.S. Fed raised interest rates this week by 0.25%, this can signal signs that the economy may be slowing. There is also news that China’s manufacturing growth has contracted.
Current support for energy came from voluntary production cuts that OPEC+ outlined to begin this month. Some analysts are reserving their judgement though, until these planned production cuts can be verified. Other support might be seen from domestic oil and gas production. Growth is expected to slow sharply in 2023, when there is a slump in prices it can curtail new well drilling and completions of wells . The impact of slowing production could boost the market.
Even with the up day yesterday, we currently have some very competitive pricing on refined fuel. If you would like more information please reach out to your Energy Account Manager, for either Will Call pricing or you can ask about buyouts for Monitored tanks that have unowned gallons.
Above there was the mention of basis, hopefully this offers some insight.
Rack or contract price = Nymex Futures + Basis
• Each terminal is located in one of several geographical markets that have unique supply/demand influences which result in differing values. (Pictured below).
• This value is then brought to the local level by adding each terminal’s individual tariff, terminal tariff, supplier margin, etc.
This plays a big deal in our market because this can dictate flow of product. In mid-April there was a big jump in Group 3 basis (the Midwest) due to a supply disruption that usually feeds the pipeline to go north, which will prompt buying in the short term which incentivizes traders to buy in more and take advantage of arbs between basis markets.
When the Group 3 market had that high basis number it lead other markets to try to sell into the Group 3 market which means more product will flow north. We could definitely see that it worked as in a short time the Group 3 basis cooled and dropped significantly.
For LP, even though we exited the past winter heating season with higher inventory levels than the past two years, there is a possibility that inventory levels change quickly and are much tighter than they currently are, as was experienced last year when stockpiles went from the lower range of the five-year average to the upper end of the range very quickly. If winter weather is normal during Fall/Winter 23-24 season, LP demand could be stronger than last year, which possibly would reduce inventories and spark a rally in prices in the coming year. This might especially be true if drying season demand is strong. For now, it is a wait and see situation. We do have forward contracting pricing for the 2023-2024 heating and drying season, if you are interested in getting a quote please contact your Energy Account Manager.
NuWay-K&H Cooperative Customer Portal
Have you received an invite to our NuWay-K&H Cooperative Customer Portal? Accepting your invite to the Portal offers many advantages, you can check billing, make payments, request a quote, check previous years product usage, see invoices and statements, and much more. We also offer digital contracting through the portal where you can sign and pay your energy contracts through our mobile app or desktop site. Your Energy Account Manager can help you with getting an invitation to the portal if you have not already received one.