For this seven-day report period, the average 12-month closing price for natural gas on the New York Mercantile Exchange (NYMEX) came in at $0.4597, a 3% increase from last week. Meanwhile, the 12-month average price for peak power on the PJM remained relatively flat, with a less than 1% decrease from last week's average.
Despite the lingering winter weather, many analysts argue that this week's natural gas price increase was less a function of cold weather than one of dwindling storage supplies.
All eyes seemed focused on this week's storage report, as the U.S. Energy Information Administration (EIA) reported yesterday that working gas in storage for the week ending March 21, 2014 was 896 Bcf. This marks the first time in over 11 years that storage levels have dipped below 900 Bcf. To make matters worse, this week's withdrawal of 57 Bcf exceeded consensus predictions of a withdrawal within the 50-54 Bcf range. Not surprisingly, news of this larger-than-expected withdrawal spooked the market, placing upward pressure on energy prices.
The question now is, will conditions though the Spring and Summer months favor replenishment of storage levels and lead to price normalization? For the short term, the National Oceanic and Atmospheric Administration's (NOAA) 6-to-10 and 8-to-14 day forecasts are calling for colder-than-normal temperatures east of the Mississippi, meaning that continued heating demand could come into play for next week's withdrawal. Additionally, Summer temperatures are projected to come in slightly higher than normal. Considering the recent trend of increased natural gas burn for electric power generation, an unusually hot summer could result in more natural gas being directed toward the power plants than the storage fields, possibly widening the storage deficit.
Regardless of this outlook, the EIA is adamant that U.S. production facilities are poised to not only satisfy demand, but to make significant storage injections over the course of the summer. Stay tuned. You may want to consider early renewal options during the months of April and May to avoid the possibility of summer-heat price spikes.