Last week energy prices moved upward. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 6% and the 12-month average price for peak power on the PJM rose by 2.7%.
The market focused on three variables that placed some upward pressure on prices: weather, storage and projected natural gas demand.
On the weather front, NOAA's 14-day forecast predicted colder than normal temperatures east of the Mississippi for the first half of March. Cold weather increases demand, and normally places upward pressure on prices.
Next, the U.S. Energy Information Administration released their weekly storage report which showed a much larger-than-expected withdrawal of 171 Bcf. The five-year average withdrawal for this time period was 118 Bcf. This withdrawal had some analysts speculating that demand was finally catching up with supply. In fact, storage levels were 12% below last year's levels. This larger than expected withdrawal placed some upward pressure on prices.
Lastly, a number of reports indicated that the country was experiencing an increased demand for natural gas from the industrial sector. For example, according to EIA, "natural gas net generation rose by 21% from 2011 to 2012 as low natural gas prices encouraged more natural gas consumption in the electric sector."
In aggregate, the reports painted a picture that energy demand was climbing while natural gas production, relative to the last 12 months, was flat. This potential tightening of supply and demand was enough to spook the market last week.