In light of the current heat wave that is roasting much of the U.S., cooling demand this season is already drawing comparisons to 2002. For that season, June to August, the average temperature for the contiguous United States was the warmest since the 1930s.
The average temperature was 73.9°F (23.3°C) making it the third-warmest summer since national records began in 1895. No state was significantly cooler than average and 17 states were much warmer than average. Consequently, the amount of natural gas consumed by power consumers in summer 2002 surged by 10% over 2001.
Accordingly, in today’s issue of The Schork Report we take a look at the current structure of the NYMEX Henry Hub futures curve to help ascertain market anxiety regarding the future availability of supply.
In this vein, the curve is hardly screaming concern regarding the present market’s ability to sate demand, be it for the extant cooling season or next winter’s heating season.
As in 2002 the current market is defined by a well-defined contango, i.e. nearby contracts yield a discount to outer month contracts on a seasonal scale. More to the point, despite multiple days of near or above 100°F temps along key gas markets in the East, the contango on the NYMEX has actually increased this week.
In other words, regardless of a significant spike in gas-fired power demand this week, the market is willing to pay an even greater premium to take molecules off.
How bullish is that? Not much.
Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.