Energy market dip presents a great buying opportunity

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A recent article released by the U.S. Energy Information Agency (EIA) shows that, year over year, energy prices across the US have risen substantially. Wholesale prices are up anywhere from 20-140% across the board for the first half of the year.

The material increase in wholesale prices can be attributed to a number of factors across the US, including the reduced investment in gas drilling with low price environment, reduced generation, pipeline constraints, temperature and more. ERCOT and PJM have seen less dramatic increases due to mild summer weather to date, while the weather in New York increased primarily due to cold winter weather.  The retirement of SONGS in California along with additional Cap & Trade rules are driving changes in the California market and NEPOOL has seen dramatic changes due primarily to gas pipeline constraints, reduced import of LNG and Canadian supply.

Regional power fundamentals are very important and should certainly be monitored as risks, but natural gas remains a primary driver of the markets for all regions.  Overall, natural gas prices have increased in 2013 and we don’t anticipate a recurrence of the low 2012 gas prices in the near term.  The NYMEX natural gas 12-month strip is up 11% versus a year ago as of 7/24.  While the trend of rising prices in 2013 isn’t wholly unexpected considering last year’s historic lows, the pleasant surprise has been a recent summer market dip which presents a great buying opportunity.

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