Strong storage injections have led to near term bearish conditions, which are creating some interesting observations in the NYMEX futures market. Last week was the first week that June 2019 served as the prompt month. The June contract shed 1.3 cents on the week, although most commenting on the prompt month would say that it increased slightly last week. That is because May 2019 expired as the prompt month at $2.566 on 4/26 and June 2019 settled at $2.567 on 5/3 for a one week prompt month gain of a tenth of a penny.
Looking beyond the prompt month, all months through March 2020 experienced losses similar to the June contract. The July and August 2019 contracts each shed at least 2 cents, while each winter 19-20 month dropped more than a penny. In total the 12-month strip shed 2.2 cents. The fact that the summer months dipped more than other months could be an indicator that the market is comfortable with near term storage levels, especially as summer demand has the potential to bring with it an increase in power burn.
Interestingly, the April 2020 – March 2021 strip gained 1.1 cents. This helps demonstrate how the NYMEX forward curve is trying to revert back to a contango market (each future year is slightly more expensive than the year before it). The market has spent around 2 years in a backwardized state, in which the nearest year is more expensive than the year after it. Over the past month alone, the winter 19-20 prices have gone from being 15 cents higher than winter 20-21 prices to just 5 cents more expensive.
In a relatively quiet market, a 10 cent move like this one is quite important. There are two reasons this could take place. Either strong storage injections have resulted in near term bearishness, or future demand is causing a surge in future pricing resulting in long term bullishness. Regardless of the reason, end users should think about the opportunities available. One could take advantage of dropping electric and natural gas commodity costs for the upcoming year or consider a longer term approach by hedging the current low price environment that clearly has upside potential.