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Natural Gas
Since our last report posted on January 24th, Natural Gas prices have at least momentarily stopped crashing, and begun to consolidate right around the level of the last long term low set back in August of 2009. While it is common for prices to pause at such an extremely oversold and tested bottom, in itself it does not provide any measure of confidence that the blood letting will not continue. In fact the technical indicators like the MACD, which still displays negative momentum, suggest more downside may be in the cards. Adding to this dreary prognosis are fundamentals that look to keep the NG market so awash in supply that records are and most likely will continue to be set for all-time highs in inventory. For example, the unusually warm winter temps have slowed inventory withdrawals to a level 33% below normal with the promise of more light withdrawals to come. In fact the projected level of inventories at winter’s end is certain to set an all time high at nearly 90% above average. And just to top this picture of an historic glut off, NG production from now till the fall will only add to the inventory problems such that prices are expected to have little room to move up in the traditional fall off-take for next winter.

If that isn’t enough to entice those looking to procure NG in long term contracts at these historically low prices perhaps NOAA’s weather prediction that warmer than normal temps will continue till at least early March!  But there is one caveat that may shorten the window of opportunity to secure these historically low prices. Many of the companies in the NG producing and exploring businesses are reaching the point where prices are so low they simply cannot afford to keep operations going … so they are preparing to cut their operations which will give may give a bit of support to NG prices.

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Electricity
Since our last report of January 24th, the PJM Index tumbled down to the lowest level ever recorded for the Jan-Feb period in the eight years PJM data has been collected for charts. Not surprisingly the generators have seen their earnings reduced by the twin pincers of greatly lessened demand and higher prices for most generation fuels. Unfortunately the cause of their dilemma, the unusually warm winter temperatures, is expected to continue at least till the beginning of March. With spring only a few weeks away we can begin to close the books on an exceptionally warm & dry winter in almost the entirety of PJM regions. But unlike NG, demand can quickly turn around. Perhaps PJM can take some solace from  NOAA’s three month prediction that calls for normal temps in the mid-Atlantic, Upper Mid-West and Northeast regions while temps are predicted to be warmer than normal for the southern half of the continental US.

Want to learn more? Review our Daily Pricing Updates as well as Fundamental and Regulatory Analysis here: http://www.worldenergy.com/tag/market-edge/