The Bulls are controlling the natural gas and electricity markets. For the fourth straight week, the natural gas and electricity commodities experienced another price increase. For this seven-day report period, the12-month average price for natural gas on the NYMEX rose 1.7%. The 12-month average price for peak power on the PJM rose 2.6%. Over the past three weeks, the 12-month average price for natural gas on the NYMEX has risen 21% and the 12-month average price for peak power on the PJM has risen 8.8%.
The shrinking natural gas storage surplus is one factor placing upward pressure on prices. As you may recall, the natural storage surplus grew to record levels last winter due to unseasonably warm weather. NOAA reported that it was the fourth warmest winter ever in the United States. March was the warmest on record, and April 2012 was the third warmest ever. The demand for space heating never materialized and the surplus grew.
However, we are beginning to see a reversal in the storage position and this fact is spooking the markets for now. For the third week in a row, the natural gas storage surplus shrunk. Since March 8, 2012, the natural gas surplus over the five-year average has shrunk from 51% to 41%.
The big question is why is the gas bubble shrinking? Is it because producers are shutting-in their wells? According to Baker Hughes, the active natural gas rig count is now 598 rigs, which is the first time since 2002 that the rig count has dropped below 600 rigs. Is it because demand is growing? As we've reported previously, many coal fired power plants are switching over to natural gas and are thus driving up demand for natural gas.
All eyes are on the gas bubble. If we have a hot summer and the gas bubble continues to shrink, we may see more upward pressure on prices.