Week Ending: Sept. 30, 2016
Short-Term Price Benchmark Trends
Retail electricity prices have finally responded to the recent decline in natural gas prices. ERC’s average price benchmark for retail electricity dropped last week by a substantial 2.17%, to a new low of $0.0755 per kilowatt hour. That is the biggest week-over-week fall in electricity prices we have seen all summer. The biggest price declines were in Maine (-5.73%), Texas (-4.70%), and Rhode Island (-4.67%). Overall, the average price benchmark for retail electricity is now -2.17% lower than this time last month.
Last week the pricing for short-term (12 and 24-month contracts) in most states were more favorable than longer-term 48 and 60-month contracts. The exceptions to this continue to be the District of Columbia, Maryland and Texas, where pricing for longer-term contracts remain slightly more favorable.
Long-Term Price Benchmark Trends
The market is currently in an extremely oversold position and waiting impatiently for some fundamental change to help put a floor under natural gas prices. Here are some of the market drivers we are looking at.
This week’s weather projection is forecasting temperatures well above normal for most of the US. This will likely result in a lower than normal level of natural gas heating and a higher than normal injection into storage. Looking forward, NOAA’s eight-to-fourteen day forecast anticipates the warming trend to spread across about 75 percent of the US, with the western Rockies the only area seeing below normal temperatures.
The gas market is currently focused on the possibility that we will match or break the storage record of 3,929 Bcf (set for the week ending November 2, 2012). Injections over the next two weeks will need to exceed the 5-year average in order to break the record. Warmer than average weather increases the odds of this happening. Setting the record would sustain downward pressure on gas, and subsequently electricity prices. Currently storage levels stand at 3,877 Bcf, and Bentek Energy is projecting injections of 54, 59, and 26 Bcf for the next three weeks. If this happens, it would put us over the record historic 4 Bcf storage level.