Energy Price Outlook
Well it has been cold! Cold weather means higher energy use and well..you got it...higher prices. The real question is whether those higher prices will last. Lets go through our fundamentals and then lets think through some buying strategies that you may be interested in employing.
The Economy Hurray! The job outlook seems to be improving. On January 7th the the U.S. labor department announced that the unemployment rate fell to 9.4% in December from 9.8% in November. With higher employment empty commercial space fills and orders begin to increase. The Dow Jones Industrial average has popped over 11,600 which indicates Wall Street has regained confidence. Still no one is anticipating a boom but a slow bumpy upward trend.
Supply
Natural gas storage has fallen below last year's record levels but still remains closer to last year than the five year average. The recent increase in prices has been driven by weather. With storage still close to last year's record levels the increase in price has been too small to stimulate additional production. Continued increased activity by shale gas producers, though, will further mitigate upward pressure on prices. Just to emphasize the point, the 12 month price for electricity on January 7th was roughly the same as the 12 month price this past August.
Weather
December was a cold month and so far January has been also. In fact, December was nearly 7.0% colder than normal. The cold premium has added nearly $.01/KWh to the market.
Outlook and Buying Strategies:
Cold weather and an improving economy probably mean that the low point of the current cycle may have been posted this past fall. The continued expansion of supply though will dampen the upside. With that said, energy prices are in a good position to drop come springtime. This opens the door for three strategies:
- Shop for fixed prices with a start date in March.
- Purchase floating market products now and fix later this spring.
- Return to utility service and begin shopping now so that you are ready to buy in the Spring.
To understand how these strategies apply to your business Call Howell Energy Consulting to create a procurement plan for your business. |
About Derek Howell
With over 30 years in the energy industry and 12 years of experience in the deregulated energy business, Derek Howell's expertise covers the broad expanse of the electricity and natural gas markets. Prior to the founding of Howell Energy Consulting. Mr. Howell was Direct Energy's Director of Retail Pricing for New England and New York regions. |
