In last week's Energy Update we reported that hot weather had placed some upward pressure on energy prices as the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 2% and the 12-month average price for peak power on the PJM rose 1.5%.
For this seven day report period, however, the 6-10 day weather forecast called for a cool down which placed downward pressure on energy prices. This week, the average 12-month price for natural gas on the NYMEX fell 3% and the 12-month average price for peak power on the PJM fell 2%.
The last two weeks provide a good example of how summer temperatures can impact pricing. As you may recall, last week the temperatures were hot and prices increased. As temperatures rose, the power plants needed more natural gas to run their power plants. In fact, according to the Energy Information Administration (EIA), last week the extreme heat in the Northeast and Mid-Atlantic regions caused "near record consumption of natural gas for power consumption." This increased demand from the power plants tends to place upward pressure on both natural gas and electricity prices.
However, this week energy prices fell as the temperatures moderated. Additionally the 6-10 day forecast, calling for the return of normal to below normal temperatures east of the Mississippi, placed some downward pressure on energy prices.
It's safe to say that summer temperatures can definitely impact energy prices and will continue to be the wild card during the next two months.
Note: According to EIA, "consumption of natural gas for power generation has been higher this year than the previous five year average (2008-2012), likely the result of significant declines in the Henry Hub price since 2008. This has contributed to an increase in the gas-fired share of total power generation."