Commodity | Tenor | Recommended Structure | Notes |
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Voluntary Carbon Offsets | 2023 | Purchase Carbon Offsets | Consumer: After Global Emissions Offset (GEO) contract increase a staggering 275% in 2021, it decreased by 53% in 2022 given the economic slowdown and significant increase of carbon offset issuances in 2022. Prices are down another 44% in Q1 ‘23 and are expected to be range bound in Q2 ‘23 which allows for offsetting opportunities for firms using GEOs at prices between $2.00/ton and $3.00/ton Rapidly assess your carbon footprint and schedule time with AEGIS today to determine the best-fitting carbon offsets for your company’s goals. |
Regional Greenhouse Gas Initiative (RGGI) | 2023 | Buy Forwards | Consumer: After RGGI carbon allowances increased by 71% in 2021, prices decreased by 3% in 2022 given the uncertainty of Virginia leaving the program and Pennsylvania attempting to join the program. Prices are expected to rise back above $13.00 in 2023 after dropping ~ 4.4% in Q1 ‘23. Pennsylvania and the 2020 Program Review are likely to be a bullish factor. AEGIS has forward structures that allow clients to lock in pricing, volume, and delivery in the second half of ’22 to mitigate the risk of continued rising prices. |
Texas RECs | 2023 | Buy Spot and Multi-Year Strips | Consumer: After Texas Renewable Energy Credits (RECs) increased by over 128% in 2021, prices dropped by 20% in 2022. Prices are expected to climb again in the second half of 2023 after going down 13.4% in Q1 ‘23 as the demand for the least inexpensive RECs to offset Scope 2 emissions (emissions from electricity purchases) is expected to increase in calendar year 2023. Rapidly assess your firm’s electricity purchases from traditional fossil-fuel power generation. Schedule time with Aegis today to determine the best RECs to obtain to meet your corporate goals. |
California Carbon Allowances | 2023 | Buy Forwards | Consumer: California carbon allowances decreased by 15% in 2022 after hitting a high of $35.20 in 2021. Inflation of 7.22% in October 2022 moved the floor price up to $22.21 in 2023 and prices are up 6.6% in Q1 ‘23 having started the year at $28.05. AEGIS recommends buying below $30.00 as the price is expected to increase above $30 and then continue to increase in the 2nd half of the year. Spot or forward purchases allow clients to lock in pricing and volume to mitigate the risk of continued rising prices. |
Aluminum: LME Aluminum | 2H 2023/1H 2024 | Swaps or Calls | Pure Consumer: LME aluminum prices rallied in September and have jumped above the recent trading range (between $2,100/mt and $2,300/mt). Even though the forward curve remains in a steep contango, prices throughout 2024 and 2025 are still within the cash price’s 2023 trading range. Demand fundamentals remain the same, as the manufacturing sectors in China, the US, and throughout Europe remain sluggish and could possibly be in a recession. End-users can use a combination of swaps and calls to take advantage of the current low-price environment to guard against higher prices in the remainder of 2023 and 1st half of 2024. Processor: Maximize the use of pass-through pricing in physical contracts. Lock in future demand by allowing customers to fix prices on forward sales while hedging these fixed-priced customer sales with swaps. |
CME Hot-Rolled Coil (steel) | 4Q 2023/1Q 2024 | Swaps | Consumer: |
NYMEX WTI | Bal 2024 | Swaps or Tight Collars | Producer: WTI has been trading in a range from the low $70s to the high $70s since early January. Clients already well hedged should look to swap remaining volume. Producers with substantial volume to add may look to collars if they can tolerate a floor in the high $60s to retain some upside participation. |
NYMEX WTI | Cal 2025 | Collars or Swaps | Producer: A downward sloping forward curve is hurting producers hedging into years two and three. We recommend clients that are more price-sensitive to utilize swaps to lock in favorable economics. Producers that can tolerate a lower floor can fight backwardation with a collar. |
NYMEX Henry Hub | Apr24-Oct24 (Winter) | Swaps | Producer: Forward prices have slid since November in conjunction with an underwhelming Winter season. AEGIS remains bearish NG in 2024 and recommend clients swap in remaining volume. |
NYMEX Henry Hub | Nov24-Mar25 | Collars | Producer: Fundamentals look loose across much of 2024, but winter call skew remains. Producers are rewarded for selling call options and therefore collars are an attractive option. |
NYMEX ULSD | Bal 24 | Swaps | Consumer: While supply has loosened relative to the past two years, fundamentals remain tight, holding the curve to an inverted structure. PADD 1 supplies remain at the low end of the five-year average as the US enters one of the busiest maintenance seasons in history. Rebounding US manufacturing demand is offsetting an ongoing slump in trucking demand and anemic winter heating requirements. Red Sea disruptions are increasingly drawing US diesel barrels Transatlantic. Tight supply and healthy demand leave US diesel markets prone to upward supply-side shocks. This is further reinforced by our moderately bullish crude outlook as diesel crack spreads remain above the five-year average. Consumers with ongoing diesel exposure should use swaps to lock in current prices and reduce fuel cost volatility.
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