From September 7 to September 27, 2012 natural gas prices rose 12.7% and electricity prices rose 6%. However, for this seven-day report period, the price increase was less painful. The average 12-month price for natural gas on the NYMEX rose 2% and the 12-month average price for peak power on the PJM rose less than 1%.
The fundamental variable that gets credit for this recent price spike is the weather. The market is focusing on the fact that winter demand is on the way. The six to ten day forecast is calling for colder-than-normal temperatures in the northeastern United States. Cold temperatures increase energy demand and typically place upward pressure on prices.
It is difficult to blame the recent price spikes on the last three natural gas storage reports. Although the injections this summer were well below average, the last three injections were much closer to normal. Even though the natural gas surplus has shrunk from 55% above the five-year average to 8.3% above the five-year average, the natural gas storage fields will be stuffed full by November 1, the start of the traditional winter heating season.
Many variables impact the direction of natural gas and electricity prices, making it hard to predict their future direction. But for now, we are all reveling in the fact that natural gas and electricity prices are still trading near a nine-year low.