Some weather forecasters say the "shoulder season" is finally here. This is the time of year when we experience very little demand for energy for either heating or cooling. The bears have been awaiting the arrival of the shoulder season because the onset of mild temperatures can dampen energy demand and place some downward pressure on energy prices.
Apparently, this week's short-term forecast was enough to finally place some downward pressure on energy prices. For only the second time in nine weeks, energy prices fell. During this seven-day report period the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 4.4%.The 12-month average price for peak power on the PJM fell 2%.
However, it is hard to conclude that more price decreases are on the way. Analysts worry that the shoulder season, which got a late start this year, will be short lived. If we transition too quickly from the shoulder season to the summer cooling season, we may lose the opportunity to offset some of the price increases we experienced in March and early April.
To make things worse, the delayed start of the shoulder season, following a prolonged winter, is making it difficult to inject natural gas into the storage fields. The traditional injection season begins April 1st. Unfortunately, the storage injections for April are below average. The natural gas molecules that were supposed to go into storage were burned in furnaces to meet the heating demand. As a result, storage levels are now 5% below the five-year average.
These natural gas storage levels can impact energy prices. If storage levels are above the five-year average, then we have a perceived surplus. This, in turn, can place downward pressure on energy prices. Conversely, if storage levels are below the five-year average we have a perceived shortage, which can place upward pressure on prices.
The next wild card to watch is summer demand. If warm summer weather arrives too early and diverts gas away from the storage fields, we may see more upward pressure on both natural gas and electricity prices.