Another Price Drop, but Clouds on the Horizon: The Beacon, 06/29/2020

THE HEADLINE: Prices are down sharply last week, making this week a good time to buy. Long-term prices are up sharply — pointing to concerns about the sustainability of the current low-price environment.

It would seem that coronavirus-related demand changes are as dominant a market driver as any of the traditional fundamentals — as COVID-19 cases increase and states take shut-down measures in response, prices drop. That is what happened last week, with gas strips down and the forward curve for years 2-5 almost flat. After that, however, things get interesting — starting in 2027, the market is up fairly sharply. It is early, but this may signal that some traders don’t believe the low prices will last — there is no pressing need to hedge out past 5 years for most traders, so they may be locking in low prices anticipating a rising market over the next several years.

THE BOTTOM LINE: Prices are low — buy now if you have open positions in the next 5 years. Prices may be going up in the long term — explore ways to use less power and natural gas, and how to use solar power to make your own.

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