For this seven-day report period the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 6% and the 12-month average price for peak power on the PJM fell 5%.
It was a nice surprise to see energy prices fall this week, but a one-time price drop does not constitute a trend. It is difficult to pinpoint one specific reason for this week's price decline. Perhaps it is due the fact that Spring, officially beginning March 20th, is right around the corner, bringing with it hope for warmer weather. Or, perhaps it was the bearish storage report released by the Energy Information Administration. This week's storage withdrawal was only 95 Bcf. As you may recall, the last four withdrawals were over 200 Bcf. This was the smallest withdrawal since the first week of December 2013.
However, do not let this week's surprise price drop lull you into a sense of security. Because of the other huge withdrawals we saw this winter, the natural gas storage fields were still operating 34% below the five-year average and marked a 10 year low.
If the unusually cold temperatures follow us into March, analysts fear that we may end the traditional winter heating season on March 31st with less than 1,000 Bcf of natural gas in the storage caverns. If these fears are realized, analysts wonder how difficult it will be to re-fill the caverns to the 3,800 Bcf level during the traditional summer re-fill season (The traditional refill season runs from April 1st-October 31st).
Here is the concern: If we have an unusually hot summer whereby the power plants need more natural gas than usual to fuel their electric turbines, and the gas industry is forced to inject more gas than usual into the storage caverns to get ready for next winter, we may see more upward pressure on energy prices this summer.
As usual, weather has a huge impact on energy prices. If you want to protect your energy budget from the price volatility that will come with a hot summer, it may make sense to look at some early renewal options this Spring.