Last Friday, we reported that natural gas prices decreased 19% during the period of December 19, 2013 to January 9, 2014, and that the 12-month average price for peak power on the PJM decreased 1% during that same time period. However, the downward trend for energy prices ended this week. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 5.4%, and the 12-month average price for peak power on the PJM rose 12%.
Natural gas and electricity are two of the most price-volatile commodities traded in the world because they are affected by so many variables. Because of this it is often difficult to pinpoint the exact reason that commodity prices increase or decrease during any given seven-day reporting period. However, this week it appears that weather gets the blame for the price spike.
One effect of the cold weather can be found in the U.S. Energy Information Administration's natural gas storage report. This week's withdrawal was the largest weekly gas withdrawal ever recorded. To put this into perspective, the withdrawal was 80% larger than the five-year average. These periodic cold snaps have eliminated the "gas bubble."
The weather over the last couple of weeks has been very cold and created a huge demand for both natural gas and electricity. For example, it was just reported that the cold snap that recently hit the country created record breaking demand for power supplies. In fact, on January 7, 2014 the U.S. broke peak power consumption records for both natural gas and electricity.
To make things worse this week, the National Oceanic and Atmospheric Administration (NOAA) released their 6-10 day outlook calling for the return of brutally cold temperatures east of the Mississippi between January 22-26, 2014. The results from the previous cold snap and the fear of another Arctic blast definitely spooked the marketplace and placed upward pressure on energy prices this week.
Where do "futures prices" go from here? Energy prices will undoubtedly be impacted by the temperatures we experience for the rest of the winter season.