Due to the Fourth of July holiday we did not publish the update last Friday. As a result, this week's update will cover a two week period. For this fourteen-day period, energy prices dropped for the fourth straight week. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 5.9% closing at $0.411/therm and the 12-month average price for peak power on the PJM fell 8%.
Since June 12, 2014 natural gas prices on the New York Mercantile Exchange (NYMEX) dropped 11% and the 12-month average price for peak power on the PJM dropped 10%. The recent price drops reflect the market reaction to the natural gas storage report, the natural gas production report, and the weather.
On the storage front, the natural gas storage deficit has decreased more quickly than anticipated. On April 3, 2014 the storage fields were 55% below the five-year average. That was a huge storage deficit. This week the storage fields were 27% below the five-year average. Since April 3, 2014 the storage deficit has been reduced by 28%. Analysts appear more optimistic that the caverns can be re-filled to 3,400 Bcf by November 1st. This optimistic viewpoint has placed some downward pressure on both natural gas and electricity pricing over the last four weeks.
On the production side, natural gas production in the United States is at an all-time high. Production numbers have benefited from the discovery and recovery of shale gas. These record-high supply numbers are making it easier to re-fill the caverns and are keeping the Bulls quiet for now.
As for the weather, we have not experienced any sustained, brutally hot weather to date. Additionally, NOAA has predicted the on-set of some unusually cool temperatures in most of the United States for next week. Thanks to generally mild weather to date, a good chunk of the country's natural gas has been sent to the storage fields instead of the power plants. This has helped place some downward pressure on energy prices over the last four weeks.
Where do prices go from here? Over the last four weeks, prices have trended down because supply is high and demand is low. However, do not be lulled to sleep because summer is just getting started. The industry still has a very large storage deficit to address over the next seven weeks.