The past two weeks of warmer-than-normal temperatures have put the brakes on the recent price spikes. As you may recall, natural gas prices rose 17% and electricity prices rose 8% during the first cold spell that lasted from September 7 to October 11, 2012. However, with the recent arrival of warmer temperatures, energy prices closed flat last week.
For this seven-day report period, the average 12-month price for natural gas on the NYMEX fell 2.3% and the 12-month average price for peak power on the PJM remained flat from the previous week.
For now, analysts agree that weather is the main factor affecting energy prices. If you can predict the weather, you may be able to predict the short-term direction of energy prices. Along with the arrival of Hurricane Sandy on the East Coast early next week, the 8 to 14 day forecast now calls for colder-than-normal temperatures east of the Mississippi.
Another variable worth noting is that we are entering this winter's heating season with the natural gas storage fields operating near the full mark of 4,000 Bcf. However, the lesson we learned from this past summer is how quickly the gas-storage bubble can vanish during the hotter months. Since May 3, 2012, the gas surplus shrank from 55% above the five year average to only 7% above the five-year average. Natural gas, at these price levels, is in high demand as power plants are switching from coal to natural gas to generate electricity.