After two weeks of flat trading, energy prices tried to jump upward this week but made minimal progress. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) rose less than 1% closing at $0.396/therm. On the power side, the 12-month average price for peak power on the PJM rose 1%.
We have now experienced three weeks of relatively flat pricing. However, energy prices tried to run up at the end of this week after NOAA predicted hotter-than-normal temperatures for the last week of August. Additionally, NOAA announced the formation of two tropical disturbances in the Atlantic which created some market volatility.
There are many variables that impact the direction of energy prices including weather, production numbers, inventory levels, pipeline constraints, the economy, and overseas tensions just to name a few. For now, all eyes are on the weather and inventory.
Thanks to the mild temperatures we are enjoying this summer, the record high natural gas supplies coming out of the shale formations are getting diverted from the power plants to the storage fields. As a result, this week we enjoyed the 18th consecutive injection above the five-year average. The storage deficit is quickly disappearing. Storages are now only 17% below the five-year average. We were 55% below the five-year average on April 3, 2014.
This mild weather has been good for prices. During the period of June 12, 2014 - July 31, 2014, natural gas prices decreased 17% and power prices decreased 13.4%.
But do not be lulled to sleep. The weather can get ugly fast and place heavy upward pressure on energy prices. For example, this past winter when polar vortex arrived both natural gas and electricity prices rose more than 20% from Nov. 1, 2013 to March 31, 2014. This may be good time to look at an early renewal strategy as energy prices are trading at an attractive level relative to the last nine years.