The Bulls are making a run. The energy market experienced the third straight week of price increases. For this seven-day report period, the12-month average price for natural gas on the NYMEX rose 4.6%. The 12-month average price for peak power on the PJM rose 1%. Over the last three weeks, the 12-month average price for natural gas on the NYMEX has risen 19.3% and the 12-month average price for peak power on the PJM has risen 6.2%.
This week's price increase was fueled by the natural gas storage report. The natural gas storage surplus decreased for the second week in a row. Over the last two weeks, the natural gas surplus on a year-to-year basis has shrunk from 52% to 44%. The gas surplus over the five-year average shrunk from 55% to 44.58%.
The big question is whether or not the natural gas surplus will continue to contract. On the supply side, the producers are threatening to shut-in more natural gas wells in an effort to shrink the gas bubble. On the demand side, we see more coal-fired power plants that are switching over to natural gas. The power plants in the southeast region of the Unites States are leading the charge in the coal-to-gas switch because large amounts of shale gas are coming from this region.
The wild card is the upcoming summer temperatures. A hot summer will reduce storage levels and influence the direction of energy prices.