At the risk of sounding redundant, weather can be your best friend or your worst enemy in the energy sector. For most of this summer, the weather has been our friend as mild temperatures have kept a lid on energy prices.
For this seven-day report period, the weather placed downward pressure on energy prices. This was the second report period in a row in which prices fell. This week, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 4.1% and the 12-month average price for peak power on the PJM fell 3%.
The likely reason for this week's price decline was, once again, the weather. The National Oceanic and Atmospheric Administration's (NOAA) 8-14 day forecast called for below normal temperatures east of the Mississippi for the first two weeks of August.
When most of the country experiences mild summer temperatures, natural gas supplies can be directed to the storage fields instead of the power plants. Full storage fields make it more difficult for the Bulls to run up energy prices. For now, natural gas inventories are only 1.2% below the five-year average.
If mild temperatures persist, perhaps we can head into the winter heating season with a surplus and low prices. However, don't be lulled to sleep. The traditional injection season runs from April 1 to October 31. We still have three months left in the injection season.