During the past four weeks, the Energy Bulls and Bears have wrestled to a stale mate. Natural gas and electricity prices remained relatively flat from July 5-19, 2012. Then, during the seven-day reporting period of July 20-26, the 12-month average price for natural gas on the NYMEX rose 3.4% while the 12-month average price for peak power on the PJM remained flat.
For the current seven-day reporting period of July 27- August 2, natural gas prices fell and erased last week's gain. We saw the average price for natural gas on the NYMEX fall 3.5% while the 12-month average price for peak power on the PJM remained flat again.
Energy prices appear to be "range bound" for now, but do not be lulled to sleep. Analysts are closely watching the natural gas storage situation. Both natural gas and electricity prices are trading near a nine-year low because we have a large amount of natural gas in storage. However, the gas bubble has shrunk for 14 weeks in a row. Since May 3, 2012 the gas surplus has shrunk from 55% above the five-year average to 14.5% above the five-year average.
Natural gas injection numbers have been below average for the past 14 weeks because the natural gas supplies are getting diverted from the storage fields to the power plants. The electric power plants are burning natural gas at historically high levels to create the electricity needed to meet summer demand for air conditioning. Note that June 2012 was 10% warmer than normal while July 2012 was 30% warmer than normal.
The Energy Bulls and Bears are both closely watching the weather. Will August be hot enough to eliminate the record gas surplus in storage? How will hurricane season impact the Gulf of Mexico? Heads up: NOAA has just named another tropical storm. The new storm is named "Ernesto" and is headed toward the Gulf of Mexico.