As the end of 2009 approaches, many businesses are asking what is in store for energy prices moving into 2010. As we experienced in Q4 of 2009, U.S. economic indicators are now having a greater impact on energy commodities than fundamental (supply & demand) data. This trend is expected to continue through 2010. Despite record high inventory levels, energy commodities have pressed higher as investors (institutional & indivual) seek protection against a falling dollar and inflationary pressures. When speculators/investors move the market rather than fundamentals, there is a much greater risk for price volatility and price spikes as we experienced in mid 2008. Finally, an improving economy will result in an increase in demand which may further add to upward price pressure.
The below charts show natural gas and crude oil trends through the last nine months of 2009. Although crude prices are impacted more by the rise and fall of the dollar than natural gas, natural gas is considered a "clean" energy source which generators currently find attractive as the government looks to limit (penalize) plants for carbon emissions through the cap and trade policies currently being developed. This could potentially create a significant increase in NG demand in 2010 and years beyond. Thus, despite record high inventory levels, natural gas futures may continue to climb as generators scrap plans for coal plants and make the move to natural gas. Expect to see the futures curve maintain its' contango status (short term prices lower/long term prices higher) as we expect to see greater price pressure for future trading months.
In summary, the 2010 energy outlook depends greatly upon the condition of the economy. Bears = Record high inventories and a lag in demand should keep energy commodities lower. Bulls = Speculators/investors will continue to put upward pressure on the market along with an improving economy which will further increase demand.
Please talk to your GSE representative for additional information and up to date market data to help guide your business through the new year.
