Last week analysts were surprised to see natural gas prices fall 6% on the New York Mercantile Exchange (NYMEX) and 5% for peak power on the PJM. Unfortunately, yet as predicted, this price drop was short lived. For this week's seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose 2.4% and the 12-month average price for peak power on the PJM rose 4%.
The Bears did not have a chance against the Bulls this week. The extremely cold temperatures and the huge storage withdrawals kept upward pressure on both natural gas and electricity prices .
The Bears have not been able to place much downward pressure on energy prices this winter because heating demand has been too great. In fact, the month of January 2014 was brutal, coming in 12% colder than normal, and was marked by record energy demand across the country. In that same month the U.S. consumed more gas than any other month in history and power burn set an all-time record high. February 2014 followed this trend, coming in 5% colder than normal. Then, to add insult to injury ,on March 4, 2014, the temperatures at Dulles International Airport dropped to a record breaking low of -1 degrees.
These cold temperatures created an unusually large demand for natural gas heating this winter which depleted the natural gas storage fields and placed upward pressure on energy prices. The natural gas storage fields are now 38% below the five-year average and the storage deficit continues go grow. Last year at this time, natural gas inventories were 15% above the five-year average.
If the storage deficit continues to grow during the month of March, it will be a challenge for the utilities to replenish the caverns during the traditional refill season of April 1st to Oct 31st. This additional demand component could place upward pressure on energy prices during the summer months.