In last week's report, we saw both natural gas and electricity prices jump up 8% as the anticipated arrival of our first cold snap spooked the market. However, this week I am happy to say that energy prices normalized. For this seven-day report period, the average 12-month price for natural gas on the New York Mercantile Exchange (NYMEX) fell 6% closing at $0.3807/therm while the 12-month average price for peak power on the PJM also fell 6%.
This week's price drop was a surprise. Energy prices seemed primed to rise again as heating demand spiked thanks to the arrival of our first serious cold snap. However, prices fell this week as the marketplace put on its coat, shrugged off the cold temperatures and chose to focus on longer term weather forecasts calling for a "normal winter."
As a side note, another possible reason for this week's price drop is that natural gas production is at an all-time high. Record high production has been able to keep prices in check over the last few months.
However,do not be lulled to sleep. Winter is just getting started. Weather has a huge impact on energy prices. As you may recall, last year from November 1 to March 31, 2014, demand driven by the unusually cold winter weather wiped out the natural gas storage fields and caused natural gas and electricity prices to increase 22% and 27% respectively.
Stay tuned. If you can accurately predict the winter weather over the next few months, you can probably guess the short term direction of energy prices.