Last week, we reported that energy prices rose slightly in August but lost all of their gains during the first week of September. For this seven-day report period, the Bears and the Bulls had mixed results. The average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) closed nearly flat at $0.386/therm while the 12-month average price for peak power on the PJM rose 2%.
Now that we are rolling into the "shoulder season," let's look at what happened this summer. Temperatures for July and August were mild this summer minimizing cooling demand. On top of that, natural gas production hit at an all-time high this summer.
As a result of this low demand and high supply, the industry refilled the natural gas storage caverns at a record pace. Natural gas inventories were 55% below the five-year average on April 3, 2014 following an unusually cold winter. However, thanks to this mild summer, the natural as storage fields now sit only 14% below the five-year average.
The overall impact of this mild summer, from June 2, 2014 to Sept. 11, 2014, was that natural gas prices fell 14% and peak power prices on the PJM fell 9%.
So, where do prices go from here? Will prices decline this fall? Many factors impact energy prices including weather, production, supply curtailments, pipeline and power plant maintenance, overseas tensions and inventory levels.
For now, all eyes are on inventory levels and weather. As we roll into the shoulder season of September and October, analysts expect to see minimal demand for either heating or cooling. If this is the case, analyst are very confident that we can re-fill the caverns before the heating season arrives.
If we get a couple of triple-digit injections over the next two weeks, it may be a good time to lock-in your energy requirements. Don't be lulled to sleep. Winter predictions are on the way and will begin to impact prices.