Due to the extended holiday season, this week's newsletter covers a three-week period instead of our normal one-week period. In our December 19 issue we reported that both natural gas and electricity prices had risen for six weeks in a row.
However, the good new is that the upward trend in energy prices has been temporarily halted. Since December 19, 2013, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) actually fell 9% and the 12-month average price for peak power on the PJM fell less than 1%. This is surprising news, given the record cold temperatures we experienced earlier this week, courtesy of the Arctic air mass dubbed the "Polar Vortex."
Luckily, the monthly "futures prices" for natural gas and electricity were unable to sustain any price rallies during recent weeks. Energy traders appear to believe that today's record-high natural gas production levels and the booming build-out of new pipeline capacity in the Marcellus Shale region are adequate to meet the country's long-term energy needs.
But stay alert. The recent one-day cold snap that hit the U.S. reminded us of the price volatility that still exists in the energy sector. For example, this past Tuesday, January 7, temperatures along the eastern seaboard dropped to record lows and all 50 states experienced temperatures below freezing. This brief cold spell rocked the energy sector for a day. If you had to buy spot gas on Tuesday, you had to pay record-high prices of $7 to $10 per therm!
Where do "futures prices" go from here? Energy prices will no doubt be impacted by the temperatures we experience for the rest of the winter season. The weather will determine the amount of natural gas we have in storage on April 1, 2014.
From November 1 to December 31, 2013, temperatures were 2% colder than normal. The cold weather has eliminated the natural gas storage bubble. As you may recall, we entered the heating season on November 1, 2013 with inventories 1.5% above the five-year average. However, storages ended this week 10% below the five-year average.
For now, energy traders are calm thanks to the record-high production levels in the natural gas and oil sectors. However, this growing storage deficit could place some upward pressure on energy prices if the trend continues. The upcoming weekend weather forecast calls for warmer, even balmy temperatures in the mid-Atlantic region. Enjoy the break from cold weather