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Forwards recap: May power biased lower as gas seesaws, demand slides

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Essential Energy Insights - February 2021

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Six trends shaping the industries and sectors we cover in 2021

Six trends shaping the industries and sectors we cover in 2021


Forwards recap: May power biased lower as gas seesaws, demand slides

Priceaction for front-month power delivery was mixed to predominantly lower duringthe week ended April 8, with the downturn at most major markets driven bysofter demand forecasts implied by moderating weather forecasts and lowerfueling costs caused by losses in the natural gas futures arena.

TheNYMEX front-month May natural gas futures contract opened the new workweekApril 4 supported by weather outlooks that turned colder, particularly in the Northeast,which provided a short-term boost to demand allowing bulls to push May gas upby 4.2 cents to a settle of $1.998/MMBtu.

Gainswere reversed 4.4 cents lower to $1.954/MMBtu on April 5 as the market turnedtowards ample natural gas supply. Losses extended April 6 as mild weatherconditions coupled with expectations of an injection that would allow naturalgas supply to beat the previous end-of-season record high set in 2012 as Maygas tumbled further to $1.911/MMBtu, down another 4.3 cents.

TheApril 7 release of storage data from the U.S. Energy Information Administrationreported a net 12-Bcf injectioninto natural gas inventories in the Lower 48 during the week ended April 1 thatwas above consensus estimatesand better than historical averages. The injection sent total U.S. working gassupply to an end-of-withdrawal-season record high of 2,480 Bcf, beating theprevious record of 2,473 Bcf set on March 31, 2012.

Despitethe bearish natural gas inventory report, market participants shrugged off thefigure in favor of cold weather forecasts for April along with the contractionin natural gas production providing bulls with the incentive to pullfront-month gas up by an impressive 10.7 cents to settle above thepsychologically important $2/MMBtu level at $2.018/MMBtu.

However,May gas continued to be pressured April 8 by the weight of a recordend-of-season inventory and the impending arrival of spring weather. Weakenedby a dearth of fundamental support, the front-month contract closed theworkweek back on the negative side of the ledger at $1.990/MMBtu, dropping 2.8cents. Overall, May gas lost 0.8 cent during the review period.

Atmajor wholesale electricity markets, power trades during the review week weremixed to ultimately lower, with losses at most hubs in line with cheaperfueling costs due to losses in spot natural gas markets compounded by scantdemand implied by moderating weather forecasts.

Powerat PJM AD saw the biggest drops, with deals averaging at $32.39 on April 4 andat $31.18 on April 8, tumbling $1.21 for the week.

Inthe East, major power markets were flat to lower owing to a downtick in thenatural gas futures arena alongside lackluster demand expectations. NEPOOL-MassMay was quoted at $32.84 on April 4 and $32.54 on April 8, for a scant loss of30 cents throughout the week, while power packages for May delivery at PJM Westwere exchanged at $34.94 on April 4 and $33.75 on April 8, shedding $1.19 forthe week. Price activity at New York Zone G continued the trend, with powertransacted at $28.55 on April 4 and $27.51 on April 8 for a weekly loss of$1.04.

Inthe rest of the Midwest, lower but mostly muted moves engulfed May powertrades, with term deals at PJM Northern Illinois assessed at $28.82 on April 4and $28.01 on April 8, slipping 81 cents for the period, while a scant weeklydecrease of 21 cents was seen at MISO Indiana, with May power changing hands at$29.31 on April 4 and $29.10 on April 8.

Inthe South, the drop in fueling costs due to a retreat in natural gas futuresalso sent prompt-month power products at ERCOT North down by $1.09 for theweek, with power packages priced at $24.64 on April 4 and $23.55 on April 8.

Powerhubs in the West were mixed but mostly subdued, with gains at most markets keptin check by declining fueling costs and an absence of demand support. Forwarddeals for May delivery at South Path-15 began the workweek at $19.30 on April 4and ended at $18.75 on April 8, dropping 55 cents for the week, whileMid-Columbia May was pegged at $9.41 on April 4 and $10.22 on April 8,increasing by 81 cents during the period. May power at Palo Verde saw littlechange overall, with power parcels seen at $17.53 on April 4 and $17.55 onApril 8, adding a scant 2 cents over the week.

Market prices and included industry data are currentas of the time of publication and are subject to change. For more detailedmarket data, including power,natural gas andcoal index prices, as well asforwards andfutures, visit our Commodities Pages.