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Forwards recap: May power biased lower as gas gains, weather fail to inspire

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Essential Energy Insights - September 17, 2020

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Forwards recap: May power biased lower as gas gains, weather fail to inspire

Forward power deals for May delivery spent the weekended April 29 favoring the negative side of the ledger as most term marketsignored higher fueling costs implied by gains in natural gas futures and foundlittle support from slack demand provided by moderating weather forecasts.

The front-month May natural gas futures contractopened the review week April 25 by dropping 7.7 cents at $2.063/MMBtu as themarket turned towards a ramped-up pace in storage building ahead of thecontract's expiration at the close of business on April 27. Losses extendedApril 26 as a backdrop of a healthy natural gas supply continued to providepressure and dragged front-month gas down another 3.1 cents to settle at$2.032/MMBtu.

The midweek April 27 session provided no respite asMay gas continued to bleed out and expired below the psychologically important$2/MMBtu mark at $1.995/MMBtu, lower by 3.7 cents. Attempting to contain thedownside, the soon-to-be front-month June contract posted a loss of 0.6 cent at$2.153/MMBtu.

June gas saw its first challenge as the new leadcontract with the April 28 release of storage data from the U.S. EnergyInformation Administration, which outlined a better-than-expected 73-Bcf net injection into natural gas inventories in theLower 48 during the week ended April 22. The combination of thelarger-than-anticipated build and mild weather forecasts that should equate toadditional large injections amid a lack of demand through the balance of theshoulder season sent the front-month contract tumbling by 7.5 cents to exit theday at $2.078/MMBtu.

However, reports of an on a gas pipeline in westernPennsylvania on April 29 unexpectedly pushed June gas higher by 10 cents toclose the workweek at $2.178/MMBtu. Overall, with the transition from the Mayto June contracts, front-month gas added 11.5 cents throughout the reviewperiod.

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Looking at wholesale electricity markets, powerproducts for May delivery had a mixed but ultimately lower showing during thereview week as the market failed to find much support from weak demand supportdue to milder weather forecasts or even from a rise in fueling costs caused bygains in natural gas futures.

May power at PJM West saw the largest losses for thereview week with deals opening the week at $36.15 on April 25 and closing at$32.77 on April 29 for a weekly loss of $3.38.

Elsewhere in the East, losses enveloped most powermarkets. NEPOOL-Mass May was pegged at $30.50 on April 25 and $30.25 on April29, losing a scant 25 cents over the week, while product for May delivery atNew York Zone G fell by $3.15 with trades assessed at $33.40 on April 25 and$30.25 on April 29.

Power packages in the central U.S. also held adownside bias in spite of an increase in fueling costs. PJM AD May was quotedat $33.45 on April 25 and $30.81 on April 29, down by $2.64. A weekly decreaseof $1.43 was seen for May transactions at PJM Northern Illinois, where powerchanged hands at $29.64 on April 25 and $28.21 on April 29. Running counter tothe trend were deals at MISO Indiana, where May power was seen at $29.64 onApril 25 and $29.80 on April 29 for a scant increase of 16 cents.

In Texas, losses of $1.26 gripped May power trades atERCOT North, which started the week at $23.71 on April 25 and ended at $22.45on April 29.

In the western U.S., the May power product leanedmixed but predominantly lower. Term trades at Palo Verde were done at $20.10 onApril 25 and $18.23 on April 29, shedding $1.87 for the week, while losses of51 cents were posted at South Path-15, where May power was exchanged at $21.21on April 25 and $20.70 on April 29. Going the other way were prompt-monthtrades at Mid-Columbia, which were valued at $13.44 on April 25 and $13.65 onApril 29, adding little more than 21 cents during the period.

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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.