In this week's Market Movers: Cold weather across much of the US ignites natural gas and power markets, a wet start to January in the West boosts the summer hydropower outlook, and easing concern over the coronavirus omicron variant sparks a rally in the crude oil markets.
Let's start with natural gas. After mild weather throughout much of November and December, the recent influx of truly cold weather has plunged temperatures in cities like New York and Chicago into the teens and single digits, raising alarm in the gas markets. In recent trading, NYMEX Henry Hub futures prices have edged back toward $4/MMBtu. In the week ahead, the continuation of colder weather could fuel a rebound in prompt-month gas prices as domestic supply tightens.
Which brings us to our social media question of the week: Will NYMEX natural gas prices top $5/MMBtu again this winter? Tweet us your thoughts using the hashtag #PlattsMM.
In power markets, this month's colder weather is expected to boost peak power demand in the New York and New England Independent System Operator territories this week. With high temperatures forecast in the low 20s Fahrenheit for New York and Boston on Tuesday, peak load could top 20,000 megawatts in both ISOs. Out West, a wet start to January has boosted snowpack levels, lifting the outlook for hydropower production across the Pacific Northwest with La Niña conditions expected to continue into the spring.
At the Dalles Dam, just east of Portland, Oregon, water supply is now forecast is at 103% of normal for the April-September period – about 8 points higher than it was a year ago. In response, summer forward packages in the western power markets have slipped recently, but remain above comparable 2021 packages one year ago.
In the crude oil market, front-month ICE Brent is rallying for the first time since late November, as concerns ease over the omicron variant and its potentially negative impact on demand. OPEC and its Russia-led partners last Tuesday approved another hike in production quotas, betting that the market can absorb more oil in the coming months despite surging COVID-19 infections worldwide. The decision came after the group narrowed its oversupply forecast to 1.4 million barrels per day from an earlier estimate of 3 million barrels per day. But with several OPEC members already struggling to hit their allotted output quotas, the actual production increase in the coming months could be less than the agreed-upon amount. One possibility is that countries with spare capacity – primarily Saudi Arabia, the UAE, Russia and Kuwait – could make up for other members' shortfalls. S&P Global Platts Analytics says the falling spare capacity globally could create an uncomfortably thin market buffer in the second half of the year.
The Platts Atlas of Energy Transition is your map to the sustainable commodity markets of the future. You can explore the Atlas by visiting the address displayed on your screen. Thanks for kicking off your Monday with us and have a great week ahead.