For the first time in six weeks, energy prices decreased. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) dropped 1.3%. The 12-month average price for peak power on the PJM dropped less than 1%.
Although energy prices fell slightly during the first week April, the month of March was ruled by the Bulls. Natural gas prices rose 11.8 % and peak power prices on the PJM rose 5.6% in March. Analysts blamed cold weather for the March price rally. Colder than normal temperatures affected most areas east of the Mississippi and kept upward pressure on energy prices during the entire month of March .
Where do prices go from here? Now that winter is over, many analysts are directing their attention to the natural gas storage fields and the natural gas production numbers.
On the storage front, the natural gas bubble has disappeared. We have 31% less gas in storage than we did one year ago. Even more concerning, the storage levels are now 2.1 % below the five-year average. This is the first time since September 2011 that the storage levels have fallen below the five-year average.
On the production side, the natural gas rig counts are declining and production is leveling off. Last year at this time, we had 658 active rigs drilling for natural gas in the United States. For the week ending March 22, 2013 we had 389 active rigs drilling for natural gas according to the Baker Hughes reports. This is the lowest rig count in 14 years.
If production is leveling off and the gas bubble is gone, the next big wild card to watch is summer demand. It is worth noting that demand for natural gas may be higher this summer than last summer because more gas will be needed to refill the storage facilities. This storage variable could place upward pressure on energy prices, especially if we have a hot summer.
Although natural gas and electric prices are trading higher than one year ago, energy prices are still near their second lowest level in 10 years.