In the six previous updates we saw price decreases. In fact, since June 12, 2014, the 12-month strip price for natural gas on NYMEX dropped 16% and the 12-month average price for peak power on the PJM dropped 13.6%.
However, for this seven-day report period energy prices closed flat. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) closed at $0.389 /therm, almost identical to last week's closing price. The 12-month average price for peak power on the PJM also closed flat relatively flat.
Though I risk sounding redundant, the storyline has not changed much over the last eight weeks. We are experiencing downward pressure on prices because supply is high and demand is low. So far this summer, we have not experienced any extended periods of brutally hot weather. As a result, the record gas production coming from the country's shale formations has been pumped into the storage caverns.
We are refilling the caverns at a record pace. On April 1, 2014, the storage fields were 55% below the five-year average. Today, the natural gas storage fields are running 21% below the five-year average. This rapid refill has kept downward pressure on prices.
Stay tuned. Some analysts think the storyline may be changing. Analysts are reporting that natural gas prices are now low enough to entice the power plant operators to switch their base load requirements from coal to gas. If this happens less gas will be available for the caverns. If the refill process slows down, it may be difficult for energy prices to continue their downward trajectory.
Is this the bottom? According to NOAA, hot weather is on the way for the period of Aug. 8-14. Weather is the wild card. This may be a good time to consider an early renewal strategy.