The roller coaster ride continued for the fourth straight week. Prices are up one week and down the next. Last 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%. For this seven-day report period, the average price for natural gas on the NYMEX fell 5% and the 12-month average price for peak power on the PJM remained flat.
The marketplace cannot make up its mind. This week, for example, some analysts predicted that natural gas and electricity prices would move upward for the second week in a row in response to the news that the gas injection was only 20 Bcf, which was well below average. However, the low injection numbers were offset by the 6-10 day weather forecast that called for the arrival of cooler-than-normal temperatures east of the Mississippi. The weather forecast countered the low injection number and placed downward pressure on prices.
Watching prices this year has been like watching a boxing match with a punch and a counter-punch.
On one hand, we exited this past winter — the 4th warmest winter in U. S. history — with an abundance of natural gas in storage. In fact, on May 3, 2012, the natural gas storage surplus was 55% above the five-year average. This news kept downward pressure on prices.
On the other hand, the summer's weather has been brutally hot and has kept upward pressure on energy prices. July 2012 was the hottest month ever recorded in the U.S. lower 48. Because of this hot weather, natural gas was consumed for air conditioning and less was injected into storage. Since May 3, 2012 the gas surplus has shrunk from 55% above the five-year average to 12.5% above the five-year average.
So, this summer's weather has countered the winter's influence on pricing.
Energy is one of the most volatile commodities in the world because so many variables can impact pricing, including weather, rig counts, the economy and overseas news. But for now, we can all revel in the fact that prices are near a nine-year low and cooler temperatures are on the way.