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Market Summary: 20 Jan – 24 Jan 2014

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

  • As the cold weather continues to drive short-term price volatility, the Prompt Month contract was finally able to break above the $4.50 level, which it was unable to do in previous weeks, to close the week at $5.18/MMBtu. Spot prices for both power and gas reached record levels across the eastern half of the country. Weather reports are predicting a return of the brutal cold to the eastern half of the U.S. for the rest of the month and into early February.  Longer-term prices remain stable as market volatility has been focused on Calendar 2014.
  • The EIA reported a withdrawal of 107 Bcf for the week ending Jan. 17, 2014. This was below historical withdrawals but was slightly above expectations of 103 Bcf. Current inventory is 2,423 Bcf, which is 598 Bcf (19.8%) below last year and 369 (13.2%) below the 5-year average. This week and next week’s report will show very large withdrawals to reflect the sustained below-normal temperatures.
  • Short-term forecasts are calling for dramatic temperature drops for most of the country (centralized in the east) for the next 1–20 days. Longer-term forecasts have been trending colder. February forecasts are calling for below-normal temperatures pushing down into Great Lakes and above-normal temps for parts of Texas. March forecasts are calling for normal temperatures for most of the population centers and slightly warmer temperatures overall than March 2013 but colder than the 10-year normal.
  • According to Bentek, heating demand was up dramatically to 65.8 Bcf/day (versus 54.8 for January 2013 month-to-date). Gas demand for power generation is also up dramatically at 22.9 Bcf/day (versus the 21.3 average for January 2013 month-to-date).
  • After natural gas broke through its $4.50 resistance level, it had a clear path to the $5 level–which it easily closed above. The market is clearly being driven by the cold weather, which is now stretching into early February. The next two storage reports will be crucial, as they will capture frigid temperatures from last week and this week. Look for the $5 level to become a support area, as the February 2014 contract sees its last several trading days prior to expiration, which occurs on Wednesday.