For the third week in a row energy prices inched upward. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 4.4% and the 12-month average price for peak power on the PJM rose 2.3 %. Since the start of the month, natural gas prices have increased by 7% and electricity prices have increased by 4% on the PJM grid.
Analysts seem to agree that reaction to the recent storage report, as well as the recent cold snap, have both kept upward pressure on energy prices during the last two weeks. Many analysts have focused on reports showing that the natural gas storage bubble has shrunk, and that the weather has been colder than normal.
On the natural gas storage front, the U.S. Energy Information Administration (EIA) reported a larger-than-expected gas withdrawal for the third week in a row. These above average withdrawals have shrunk the gas bubble. To date, we have 18.5% less gas in storage than we did one year ago. The report also showed that storage fields are now only 11.4% above the five-year average. As you may recall, last year at this time the natural gas storage levels were 51% above the five-year average.
With regard to the weather, the past two weeks were cold. Additionally, the 8-14 day forecast released from the National Oceanic and Atmospheric Administration (NOAA) indicated that temperatures east of the Mississippi will be colder than normal during the period of March 20-28, 2013. Colder weather, of course, increases heating demand and tends to place upward pressure on energy prices.
The big question now is whether or not these gains are sustainable. The bulls may win a few more fights during the next few months if production remains flat, as it has over the last 12 months, and if demand increases as more power plants, chemical plants and other various industrial users switch to low-priced natural gas,.