Collapsing energy prices make it imperative for Texas business customers to take advantage of the current market and lock-in a low, fixed price for electricity before the end of the year and any rebound in the market.
Energy prices continued their slide last week, with oil dipping below $50/barrel and ending below $41 -- a four year low. Oil has lost $100 since its summer high, an unthinkable proposition just four months ago. Friday's close of $40.81 was the lowest closing price since Dec. 10, 2004, when oil closed at $40.71.
How long such low prices will last is the question. While economic indicators are contributing to a bearish outlook, OPEC President Chakib Khelil promised the cartel would cut production at its meeting on December 17 if oil remained below $60 a barrel. Energy officials from other OPEC members have expressed support for $75-80 as a "fair price" for oil, and support taking action to ensure prices return to those higher levels. Accordingly, Texas businesses should take advantage of the current lows in electricity rates while they last.
Oil's drop has also pushed natural gas prices lower, as has strong storage reports from the federal government and weaker demand. The front-month futures price for gas is down about 58% from its July peak. Between April and September, monthly gas consumption by industrial users dropped 14% to 4.756 billion cubic feet, the lowest monthly figure since at least 2001.
Lower demand and lower usage of stored gas pushed natural gas prices below $6/MMBtu and to the lowest closing since January 2005. Friday's close was $5.742, but Morgan Stanley still expects 2009 natural gas prices to be $7/MMBtu, meaning customers must take advantage of today's current prices.
While it's a great time to lock-in a cheap electric rate, Texas commercial customers must navigate the landscape carefully. As wholesale energy prices fall, electric companies will try to increase their margins by not lowering their retail prices as much, in an attempt to make up for squeezed margins in a higher-priced environment. It's just like when your corner gas station doesn't lower prices as fast as they could, unless they have a competitor across the street cutting prices.