ERC Price Benchmark Trends Week Ending: November 4, 2016

The national average benchmark price last week for a December 2016 electricity contract increased only slightly (+0.4%) to $0.0741 per kilowatt hour (kWh). In a period with a handful of slight declines, and mostly mild gains, Texas again saw the largest price decline of 1.83%, to $0.0410/kWh, which is still 0.55% higher than this time one month ago. The next largest price decline was in Maine, a mere 0.18% lower this week, at $0.0836/kWh, which is a full 2.46% lower than this time one month ago. DC posted the biggest increase, breaking $0.0806/kWh, which is 3.18% higher than last month’s $0.0781/kWh. This spread of increases and decreases resulted in a meager 0.02% downward shift in month-over-month benchmark prices for a December 2016 start.

Short-Term Trends

Since the NYMEX natural gas prompt month reached a two-year high in mid-October, the December 2016 contract has shed almost 34 cents week-over-week to settle at $2.767/MMBtu on Friday. The December 2016 contract lost almost 18% of its values last week, and remains solidly below the psychological $3.00/MMBtu level. Natural gas calendar and seasonal strips followed the downward prompt direction, with Winter ’16-’17 showing the largest decline (-14 cents) since the beginning of November.

From a technical perspective, natural gas spot prices seem to be settling back into the broad $2.50/MMBtu to $3.00/MMBtu trading range that has been in play since the middle of June 2016, with the exception of the first half of October rally. The December 2016 NYMEX natural gas contract’s new current boundaries are now around $2.86/MMBtu on the resistance side and $2.625/MMBtu on the support end.

The drop in natural gas prices during the past few weeks is most likely because of two factors. First, they have simply followed oil, which fell from $52 to $44 over this same time frame. Natural gas prices typically track oil prices. Secondly, long-term weather forecasts are for below-normal temperatures for the back end of November continuing for most of the winter.

Long-Term Trends

Average total natural gas production remained unchanged last week, averaging 77.2 Bcf/d. Dry natural gas production also remained constant week-over-week, averaging 71.0 Bcf/d. Average net imports from Canada decreased 5% from last week, falling by an average of 0.3 Bcf/d.

Total U.S. natural gas consumption rose 1% compared with the previous report week, according to data from PointLogic. Power burn climbed 5% week over week, as some areas of the U.S. had temperatures in the 70s and 80s. Industrial sector consumption decreased 1% week over week. Consumption in the residential and commercial sectors also declined one percent. Natural gas exports to Mexico increased two percent.

As it looks at the moment, November is setting up to be the second winter-heating-season month to be warmer than normal. The delay in what is forecast to be a colder-than-normal winter has repressed gas prices so far this season. The continued warming trend is starting to widen once again. In the six-to-ten day forecast, the warming trend is projected to cover about 90% of the U.S.

James Moore, Ph.D., is CEO of the Energy Research Council (ERC). He has been CEO of several research companies, including TDC, a subsidiary of International Thomson; Highline Financial, a Thomson-Reuters company; and Mentis Corporation, which was acquired by Gartner Group. He has also served as Executive Director of The Global Futures Forum, an international think tank, and as Managing Director of Gartner Group’s Global Financial Services practice.

* ERC electricity price benchmarks are derived by: 1) aggregating daily matrix prices issued by many electricity suppliers across General Service tariff rate classes for each electric utility; 2) averaging each utility’s price benchmark together for a state-level benchmark; and 3) averaging state-level benchmarks across five business days to create weekly average price benchmarks, based on next month’s start date, for commercial customers with an annual usage of up to one million kWh. The high level of correlation between matrix and custom pricing makes ERC price benchmarks a reliable measure of how prices are trending, and the direction and velocity at which prices are changing week-over-week and month-over-month. This is similar to how the S&P and Dow measure the rate and direction of change in stock market prices over time.