Energy prices traded flat for the second week in a row. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) closed at $0.395/therm, almost identical to the previous week's close of $0.394/therm. On the power side, the 12-month average price for peak power on the PJM also closed flat relative to the previous week.
Prior to the price flattening we have experienced over the last two weeks, there was a net price decrease of 17% for natural gas and a 13.4% decrease for electricity side for the period of June 12, 2014 - July 31, 2014.
The reason prices have stagnated over the last two weeks is because the Bull's story has been neutralized by the Bear's story. The Bears are trying to place downward pressure on prices by pointing to the fact that natural gas production is at an all-time high, eliminating the storage deficit at a record pace. The Bears also note that natural gas inventories were 55% below the five-year average on April 3, 2014, but are now only 19% below the five-year average. The Bears believe that the storage deficit will be eliminated by November 1st, increasing the likelihood that prices stay low.
Conversely, the Bulls think energy prices should be increasing because, even though the refill rate has been impressive, storages are still 19% below the five-year average. We still have a big deficit and the refill rate is slowing, causing the Bulls to be pessimistic about the prospect of refilling the caverns by November 1st. They point out that natural gas prices are now low enough to entice the power plant operators to switch some of their base load requirements from coal to gas. This switchover is one reason that may explain why the last four injections have been below expectations. There are 12 more weeks left in the traditional injection season ending November 1st. The industry needs 12 more consecutive injections above 77 Bcf to hit the refill target of 3,400 Bcf.
In the end, August weather will likely be the variable that settles the dispute between the Bears and the Bulls. The NOAA forecast has been updated and is now calling for above-average temperatures east of the Mississippi from August 20 - 28, 2014. Weather is the wild card. For now, energy prices are trading at an attractive level relative to the last nine years. This may be a good time to consider an early renewal strategy.