Short-Term Price Benchmark Trends
The ERC national average benchmark price for retail electricity decreased slightly last week by one-third of a percent to $0.0742 per kilowatt hour (kWh). Prices decreased the most (-2.9%) in New York to $0.0633/kWh. After a -0.1% decrease last week, Texas remains the deregulated market in the U.S. with the lowest average benchmark price for retail electricity, $0.0413/kWh. Massachusetts remains the state with the highest benchmark price, $0.0990/kWh, after a 1.9% increase last week. Even with last week’s decline, retail electricity prices in almost all of the restructured states remain 2-3% higher than one month ago.
The latest short-term (14-day) outlook from the National Oceanic and Atmospheric Administration projects below-normal temperatures in the west, with the remaining 70% of the U.S. expected to have mostly above-normal temperatures. Natural gas prices decreased marginally last week as weather forecasts turned more spring like.
The June 2016 NYMEX natural gas spot contract price decreased by 0.24% last week, moving below the technical support level that has been in play since the middle of April. The natural gas market is currently trading in a range of a $2.15 per million British thermal units (MMBtu) upside resistance level, and a $2.04/MMBtu support level. The market appears to be setting up for a move into a lower technical trading range.
Long-Term Price Benchmark Trends
Although data from the U.S Energy Information Administration (EIA) showed the natural gas market was undersupplied last week by 3.4 billion cubic feet per day (Bcf/d), weekly storage injections need to be reduced by an average of 22% in order to bring the current storage capacity in balance with demand by next fall. Thus far, some cold temperature trends have marginally reduced the huge supply overhang. It appears this week’s EIA guidance for another downsized storage injection, which will likely fall 10-20 Bcf short of one year ago, will advance this process. But, unless an early start to a hot summer develops and further downsizes injections, an even lower price environment may be required to slow storage increases.
After hitting a 17-year low in early March, natural gas prices have rallied more than 30 percent. The rally, however, has sputtered recently, with last week marking the third straight week of losses for the June 2016 natural gas contract price. The high volatility seen during the past few weeks is a sign that the market is searching for direction, getting upward pressure from declining production, and tethered to the downside by storage. And, demand is oscillating because of changing weather outlooks.
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.
