Although the official start of winter is not until December 21, the unofficial start is the date when we record our first natural gas withdrawal from storage. So, the unofficial start of the heating season arrived this week when the U.S. Energy Information Administration reported the first withdrawal of the season. This week's withdrawal of 45 Bcf was larger than expected. The five-year average withdrawal for this time of year is only 2 Bcf.
Thanks to the onset of cold temperatures and the first storage withdrawal of the season, energy prices rose for the second week in a row. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 2.2%, and the 12-month average price for peak power on the PJM rose 1.3%.
Analysts blame the recent price rally on the weather. The National Oceanic and Atmospheric Administration (NOAA) is predicting colder than normal temperatures east of the Mississippi for the next two weeks. This forecast is placing upward pressure on prices. However, it is too early to panic. Natural gas production is operating near all-time highs and the natural gas storage fields are 0.4 % above the five-year average.
Stay tuned. If you can predict the severity of the upcoming winter weather you may able to predict the short-term direction of both natural gas and electricity prices. However, keep in mind that even the forecasters have a hard time predicting our volatile weather.