For this seven day report period, energy prices dropped for the second straight week. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 3.5% closing at $0.436/therm and the 12-month average price for peak power on the PJM fell 1%.
Although energy prices traded in a very tight range during the spring period of May 2, 2014 to June 12,2014, the Bears are now winning the pricing battle. Energy prices have decreased two weeks in a row. Since June 12, 2014 natural gas prices on the New York Mercantile Exchange (NYMEX) have fallen 6% and the 12-month average price for peak power on the PJM has fallen 2%.
It is easy to explain the recent price drops, but it is hard to predict how long it will last. Energy prices are dropping because the natural gas storage deficit is decreasing. This week the Energy Information Administration (EIA) reported the seventh consecutive triple-digit injection of the season. This is the first time in history that the industry has reported seven consecutive injections over 100 Bcf. Thanks to these robust injections, the natural gas storage fields, which were 50% below the five-year average on May 2, 2014, are now 31% below the five-year average.
Thanks to the lack of any serious cooling demands over the last seven weeks, the country's natural gas, which is getting pumped out of the ground at record high levels, is getting injected into the storage fields instead of the power plants. The shrinking storage deficit is placing some downward pressure on prices for now.
However, summer is here. We have a long way to go to refill the caverns to 3,400 Bcf by November 1st. We need 19 more consecutive injections above 84 Bcf if we want to overcome the deficit created by this past winter's huge heating demand. Summer is the wild card.