In last Friday's Energy Update, we reported that natural gas and electricity prices closed on a flat line. However, for this seven day report period, the 12 month average price for natural gas on the NYMEX rose 4.5% and the 12 month average price for peak power on the PJM rose 2.8%.
At the start of the week, it looked like a sluggish U.S. economy and Hurricane Irene would dampen demand for natural gas and electricity and thus place downward pressure on energy prices. Then the government reported that the United States did not create any jobs in the month of August, and the unemployment rate stayed at 9.1%. A lethargic economy can place downward pressure on energy prices. Hurricane Irene proved to be less devastating than feared, knocking out power on the Eastern Seaboard and reducing temperatures, which caused a reduction in power demand and placed downward pressure on energy prices.
However, as soon as the National Hurricane Center mentioned that a new tropical depression was brewing in the Gulf of Mexico, the bulls took over and energy prices started to rise. Tropical depression #13 is expected to turn into a tropical storm today. This storm has already caused "shut-ins' in the Gulf of Mexico and has immediately placed upward pressure on energy prices.
Even though the on-shore shale gas boom in the U.S. has reduced our dependency on our gas/oil rigs in the Gulf of Mexico, any tropical disturbance in the Gulf of Mexico will spook the market and thus place upward pressure on energy prices, as we saw this week. Stay tuned. Hurricane season does not end until November 1st. For now, the good news is that natural gas and electricity prices are still trading near a seven year low.