No one can predict the future, but we are always looking for patterns that repeat themselves and we use our observations to advise clients when it is in their best interest to lock in fixed rates. One of those repeatable patterns is what takes place after the energy markets reach a cyclical low, which is exactly where we are today.
Before continuing with the implications of the cyclical low reached on 09/04/09, we should point out the cost of electricity and natural gas is highly correlated. In fact of all markets actively traded on the NYMEX, natural gas is the most highly correlated to the cost of electricity, which is why we focus on natural gas regarding the timing of fixing rate hedges for both natural gas and electricity.
We began alerting our clients last summer that every year since 1995, when the price of natural gas was lower in the summer than the previous winter, a cyclical low was reached each time in September, and the average price of natural gas was always significantly higher over the next 12, 24 and 36 months. This pattern occurred 7 times since 1995 and as forecasted the pattern was repeated for the 8th time with the cyclical low reached on 09/04/09.
The chart below contains a 15-year history of natural gas covering the period from 1995 to 2010.
Note: We have drawn a red line showing the 12-month increase in prices from each September low including the most recent low reached on 09/04/09.
It is clear based on the above pattern that we are in the early stages of the next up cycle in prices. By clicking on the Link below you can either email or call one of our consultants who will work with you to develop a strategy appropriate for your level of risk tolerance.