| Commodity | Tenor | Recommended Structure | Notes |
|---|---|---|---|
| Voluntary Carbon Offsets | 2024 | Purchase Carbon Offsets | Consumer: After the Global Emissions Offset (GEO) contract increased 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 fell another 73% in 2023 and have not traded above $1.00 since August 2023. While firms would have paid 8x as much to offset using GEOs on Jan 1, 2022, prices are currently $0.40 - $1.00. 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) | 2024 | Buy Forwards | Consumer: After RGGI carbon allowances increased by 41% in 2022, prices increased over a volatile 2023 given the uncertainty of Virginia leaving the program, Pennsylvania attempting to join the program, and the potential removal of surplus allowances. Prices are expected to continue rising through 2024 after reaching the $15.00 level in Q4 ’23 and soaring by ~31% to the $20.00 level in Q2 ‘24. Pennsylvania’s entry and reducing the number of allowances sold by 19.1mn each year following adjustments from the RGGI program review are likely to be bullish factors through 2025. AEGIS has forward structures that allow clients to lock in pricing, volume, and delivery in the second half of ’24 to mitigate the risk of continued rising prices. |
| Texas RECs | 2024 | Buy Spot and Multi-Year Strips | Consumer: After Texas Renewable Energy Credits (RECs) decreased by over 50% in 2022, prices dropped further by 20% in 2023. Prices continued lowering in Q1 ’24 but are expected to increase in the second half of 2024 after regaining 40% in Q2 ‘24 as the demand for the least inexpensive RECs to offset Scope 2 emissions (emissions from electricity purchases) is expected to increase in calendar year 2024. 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 | 2024 | Buy Forwards | Consumer: California carbon allowances decreased by 3% in 2023 after hitting a high of $34.60 in 2022. Inflation of 3.24% in October 2023 moved the floor price up to $24.04 in 2024 and prices have gone as high as $41.92 in Q1 ‘24 having started the year at $39.96. AEGIS recommends buying below $40.00 as the price is expected to increase above $41 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. |
| CME Hot-Rolled Coil (steel) | 4Q 2024/1H 2025 | Swaps | Consumer: The front months of the CME HRC Steel curve continue to offer opportunities for consumers to hedge at historically low prices. While the forward curve for both periods is in contango, meaning forward prices are higher than spot prices, consumers can lock in near or below budgeted prices, ensuring input cost targets are met. Options are available for CME HRC, but they are relatively illiquid. Please get in touch with AEGIS for specific strategies that fit your operations. |
| NYMEX WTI | Bal 2024 | Swaps or Tight Collars | Producer: WTI has moved lower since trading as high as $85/Bbl in April. 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. Fundamentals support higher prices through the end of the year. |
| 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 | Jun24-Oct24 (Summer) | Swaps | Producer: Near-term prices have risen sharply since the end of May, driven by significantly lower production, which appears to have tightened the S-D balance. AEGIS holds a neutral view on Summer '24, but the risk remains that higher prices incentivize curtailed production to come back. Swaps are recommended for this tenor. |
| NYMEX Henry Hub | Nov24-Mar25 | Collars | Producer: Fundamentals look loose for the Winter '24/'25 period and AEGIS maintains a bearish outlook. However, winter call skew remains. Producers are rewarded for selling call options, and therefore, collars are an attractive option. |
| NYMEX ULSD | Bal 24 | Swaps | Consumer: Prompt diesel prices have traded 19% off year-to-date highs presenting an opportunity to hedge at a seasonal low in case demand surprises to the upside. US diesel demand has spent the bulk of the year around 5% under the ten-year average amid increased penetration of renewable diesel and biodiesel into the fuel pool. Sluggish demand and a looser inventory environment drove the forward structure into contango. Yet diesel demand has seasonally surprised higher heading into July in six out of the last ten years. Lower US pricing has already attracted foreign buyers, driving US distillate exports to 21% over the ten-year average.
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