In last week's update, we reported that the 12-month average price for natural gas on the NYMEX rose 10%, and the 12-month average price for peak power on the PJM rose 4%. This was the first measurable increase since December 1, 2011. However, with the lack of any significant heating demand, the Bulls had a hard time mimicking last week's price rally. The market closed relatively flat compared to last week's numbers. For this seven-day report period, the 12-month average price for natural gas on the NYMEX rose 2%, and the 12-month average price for peak power on the PJM fell 1%.
For now, the bottom line remains the same. We are enjoying a large supply of natural gas because much warmer-than-normal temperatures are limiting demand for heating so far this winter. As a result, the natural gas storage surplus is now 25% greater than the five-year average. Supplies are high and demand is low.
On Groundhog Day, February 2, 2012, Punxsutawney Phil saw his shadow. According to legend, this means we will have six more weeks of winter. Colder temperatures could place upward pressure on prices. However, for this year, Phil's forecast may be incorrect because Old Man Winter hasn't even shown up.
Are prices at the bottom? Here is one variable to watch: If natural gas prices stay low, producers will shut-in their wells because it will be economically attractive for them. For now, prices are trading at very low levels. This is still a great time to look at an early renewal strategy.