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Market Summary: 03 Feb – 07 Feb 2014

The following is a summary of last week’s market activity and the market outlook:

  • The short-term markets were on another wild ride last week. Wednesday, the market traded as high as $5.73 and as low as $4.99, before closing down nearly 30 cents for the week at $5.03. The March contract closed down 17 cents for the week while the 12-month Strip closed higher (up 7 cents), helping to close the gap on the Prompt Month with the contracts further out on that strip. This may be providing a hint to a new range after the extreme volatility. Longer-term prices continue to remain remarkably stable, as market volatility has been focused on Calendar 2014.
  • The EIA reported a withdrawal of 262 Bcf for the week ending January 31, which was slightly less than expected but above historicals. Current inventory is 1,923 Bcf, which is 778 Bcf (28.8%) below last year and 556 (22.4%) below the 5-year average. If the next three injections are as expected, and the remainder of the withdrawal season matches the 5-year average, the end of March inventory would be at approximately 1,100 Bcf. This would be the lowest since 2004 (1,014 Bcf) and would reflect a deficit of ~720 Bcf versus the 5-year average.
  • While the next week is expected to be cold, forecasts show moderating temperatures in the 6- to 15-day time frame. Short-term forecasts are calling for below-normal for the eastern two-thirds of the country, with above-normal temps in the West. The 6- to 10-day forecasts are calling for above-normal temps for the majority of the country, with the exception of parts of the Northeast. The 11- to 15-day forecasts are calling for normal to above-normal temps for the majority of the country. Longer-term, Earthsat is showing that March is expected to be normal for most population centers and, overall, slightly warmer than 2013, which was colder than the 10-year normal.

The outlook for the near-term is that prices are high/volatile and risk is real and ongoing through the winter. In addition, there is significant price support for summer prices due to the storage deficit (to erase this storage deficit during injection season–April-October–injections would need to exceed the 5-year average by 3.4 Bcf/day). The lack of volatility in long-term prices however could be an indicator of value.