The price of oil has little to nothing to do with the price of your electricity. Electricity rates are in direct correlation to the price of natural gas, the primary component in producing electricity now. The supply and demand for gas along with North American weather patterns control the price of your electricity in Texas.
Each year we store excess natural gas, generally in underground caverns, throughout the summer months beginning in April in anticipation of the increase in demand for gas for winter heating, especially in the north. Generally gas storage inventories are built up through the end of October, and withdrawals for the winter cold weather begin in the first week of November continuing through the end of March. The increase in production of natural gas in 2015 coupled with the reduction in demand, especially due to the El Nino weather pattern late in 2015, has increased the amount of gas in storage to a new record.
The gas industry was unexpectedly able to ADD more natural gas into storage in each of the first three weeks of November, bringing the total to 4.009 Trillion Cubic Feet (“tcf”)of gas in storage at the end of the third week. This amount broke all previous records for the amount of natural gas in storage, and actually pushed the maximum capacity for gas in storage. This record storage number was then followed by the two middle weeks of December having two of the five lowest drawdowns EVER of gas during any December since they began keeping records. The outcome for halfway through January this year is we have 3.475 tcf of natural gas in storage which is 587 Billion Cubic Feet (“bcf”) greater than in 2015 for the corresponding time frame, and 474 bcf greater than the five-year average.
Two years ago this month natural gas prices were above $6.50 due to the frigid winter weather that year and the increased demand for gas to heat homes and businesses. Today the current gas contract price is around $2.15. Gas hit a 16-year low on December 17th under $1.80. These low natural gas prices are at historical lows for the winter months.
Why then do I believe electricity rates will again go lower? I predict natural gas in storage will bottom out in March between 2.85 tcf – 3.0 tcf. (Morgan Stanly also projects a 3.0 tcf bottom.) The highest amount in the last 5 years of gas in storage at the end of the winter cycle was 2.369 tcf in March, 2012. We should far exceed that amount this year.
If the nation has a maximum storage capacity of around 4 tfc, and we are already 587 bcf ahead of last year’s gas in storage which ended with a new record in November, it is extremely likely we will simply run out of storage capacity for gas in September or October. What do we do with the excess gas – give it away or burn it off?
I am predicting we will see natural gas prices at $1.35 – $1.50 later this year. Electricity prices will fall right along with the price of gas to new lows. When your electricity contracts come due this year you should sign up for a long term program in order to lock these low rates. I do not think the rates we will see in September – October this year will be this low next year and possibly not for the next ten years. Take advantage now and lock in your savings.
By the way –
To go back to my “January, 2016 Predictions for the Year,” it appears we hit many of the new lows I projected on only January 20th.
Oil (WTI) = $25-$28 prediction – closed 1/20 at $26.55 (down 28.32% for ’16);
DJIA = 15,400 – 15,600 “ – hit a low 1/20 of 15450.56 (down 11.31% for ’16);
S&P 500 = 1800 – 1825 “ – hit a low 1/20 of 1812.29 (down 11.33% for ’16);
NASDAQ = 4250 – 4500 “ – hit a low 1/20 of 4313.39 (down 13.86% for ’16);
One of the stocks I cautioned my readers about buying was ConocoPhillips. Amazingly, Merrill Lynch had listed it as their NUMBER ONE BUY for 2016 just before the New Year. ConocoPhillips hit $32.71 per share on 1/20, which is a drop of 29.94% since January 1st. As I mentioned, “BUYER BEWARE.”
