Short-Term Price Benchmark Trends
The ERC national average benchmark price for retail electricity increased again last week by slightly more than one percent to $0.0745 per kilowatt hour (kWh). Prices increased in each deregulated market, except Maryland, which experienced a -0.4% decrease to $0.0762/kWh. Texas remains the deregulated market in the U.S. with the lowest average benchmark price for retail electricity, $0.0414/kWh. Massachusetts remains the state with the highest benchmark price, $0.0971/kWh.
The National Oceanic and Atmospheric Administration forecast for the next two weeks calls for below-normal temperatures over a major stretch of the U.S., from the Midwest to the Northeast. Above-normal temperatures are forecast for the west and south. With seasonable temperatures now emerging over the U.S., heating demand will be minimal. As a result, some upward acceleration in natural gas storage injections is expected beyond next week’s U.S. Energy Information Administration’s storage report, which will likely offer a supply build similar in magnitude to last week’s 68-billion-cubic-feet increase.
Long-Term Price Benchmark Trends
Natural gas prices decreased last week as weather forecasts turned more spring like. The June 2016 NYMEX spot contract price decreased by 3.54% or $0.077 per million British thermal units (MMBtu). The June 2016 NYMEX spot contract price is trading in the lower half of the technical trading range, which is bound on the upside at around $2.17/MMBtu and the lower support side of $2.04/MMBtu. The natural gas market continues to have difficulty moving meaningfully in either direction, as is often the case in the shoulder period when weather subsides as a pricing influence.
Looking forward, several factors continue pressuring the market either upward or downward. Pressuring prices downward is the start of spring like temperatures and limited natural gas demand for cooling. This should support relatively strong storage injections, and maintain storage levels at near record-high levels.
Several factors are pressuring prices upward. The initial weather outlook for the summer season calls for above-normal temperatures across much of the U.S. This would increase cooling demand and draw down on natural gas storage levels as we head into next fall. Moreover, electricity prices are historically higher in the summer.
Three unexpected nuclear outages have put total plant availability to only 82 percent. In addition, a natural gas pipeline explosion last week in a 15-mile long section of Spectra Energy’s Texas Eastern Transmission line in Salem Township, Pennsylvania, will limit natural gas flowing into the Northeast for some time. We should expect increasing electricity prices in the region as a result. The U.S. rig count is down to 420. Finally, dry natural gas production decreased during the last several weeks, and is expected to continue decreasing. 
Overall, it appears that more factors are supportive of electricity and gas prices continuing upward from their low point reached in March 2016.
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.
