The roller coaster ride continues for the third straight week. From 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. Then, from July 27-August 2 the average price for natural gas on the NYMEX fell 3.5% while the 12-month average price for peak power on the PJM remained flat again. Now for this week, the average price for natural gas on the NYMEX rose 2.8% and the 12-month average price for peak power on the PJM rose 1%.
Energy prices are "range-bound" for now and are still trading near the nine-year low. The marketplace cannot makeup its mind. On one hand, we are experiencing some brutally hot weather this summer which normally places upward pressure on energy prices. According to National Oceanic and Atmospheric Administration (NOAA), July 2012 was the hottest month ever recorded in the United States. Because of this hot weather the gas burn from the power plants during the period of April to June 2012 was up 27% from the same period last year.
However, natural gas and electricity prices are unable to sustain any significant price increases because the gas surplus from this past winter is still in play. Although the natural gas surplus has shrunk from 55% above the five-year average to 13.5% above the five-year average in 15 weeks, the market has not panicked because the natural gas storage fields are still near record high levels for this time of year. Currently, the natural gas storage fields are approximately 78% full. Since the injection season runs from April 1 to October 31 the market seems to believe that storages will still be full well before winter hits on November 1.
Where do prices go from here? All eyes are on the weather. Will August be hot enough to eliminate the record gas surplus in storage? How will hurricane season impact the Gulf of Mexico?