For the second week in a row energy prices have closed relatively flat. During this week's seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 1% and the 12-month average price for peak power on the PJM was nearly identical to last week's closing price.
We were concerned that energy prices would try to stage a rally this week as National Oceanic and Atmospheric Administration (NOAA) forecast the return of hot weather to most of the country during September 11-19. However, the rally never happened.
It may indeed be difficult for energy prices to sustain any major price rally during the next few weeks because the summer cooling season, for all practical purposes, is over. The official start of autumn is September 22.
Additionally, it is hard for energy prices to stage a late summer price rally when the natural gas production numbers are so high. Natural gas production numbers are at an all-time high despite the fact that the active rig count for natural gas is 56% below the five-year average. These record high production levels can be attributed largely to the expansion of horizontal drilling programs and other such techniques in shale formations.
According to the Energy Information Administration (EIA), the U.S. natural gas marketed production was 25,319 Bcf in 2012. That was the equivalent of 253,190,000,000 therms. The last time production numbers were near these record levels was between the years of 1970-1977.
Which way do prices go from here? The upcoming hurricane season and winter temperatures will likely influence the short term direction of energy prices. For now, we are happy to say that supplies are high, demand is low and prices are trading near their second lowest level in nine years.