Energy Markets "Pause", Holding Opportunity Open: The Beacon, 05/25/2020

Last week, the forward energy market held its price level, with no month after AUG 2020 changing by more than 2 cents. The 12-month strip still has the best price point, with the rest of the annual strips remaining clustered in a 3.5 cent range between $2.455 and $2.49. North American drilling rigs in the field are down sharply for a 10th straight week -- down another 23 rigs this week, with the US rig count down 21 and the Canadian count down 2. That marks a 628 rig decrease in the last 10 weeks - a 64.9% decrease from the pre-pandemic/oil price collapse numbers. This appears to pose the largest price increase risk currently in the market. The EIA reported a natural gas storage injection of 81 bcf -- in line with industry expectations, but below last year's build of 101 bcf and the 5-year average injection of 87 bcf. Storage levels are relatively strong -- moving closer to the 5-year max, and still 19.4% above the climbing 5-year average. This week's weather map is showing continued warmer than normal temps for the eastern 2/3 of the country, with the West Coast now also calling for warmer than normal temps and only the Rockies holding expectations for mildly cooler temps. There are no expectations of tropical weather activity in the next week, although this hurricane season got an early start and is forecasted to be more active than normal. Current price levels are still showing good value for 2022-2025, and opportunities to take price risk off the table are available. Keep working to lock in prices for as much term as possible, and give serious thought to on-site efficiency and generation projects to further lower energy spend.

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