USA : August 13, 2009

As the end of summer approaches, the global energy market is showing signs of progress and redevelopment.  We find two factors contributing to the recent price actions in the energy markets.  First, there has been an uptick in energy speculation by traders and second, investors are looking to shield themselves from a declining US dollar.

In our estimation, the US economy will show little to no growth by the end of 2009 with any positive signs being reflected in 2010 thus keeping a lid on prices.  Moreover, overall electricity pricing in the US is down.  As the global economy recovers, we expect to be dealing with a steady supply/demand balance which should significantly boost prices.

Despite dropping to a low of $59 per bbl in mid-July oil prices rebounded to the low $70 per bbl by early August.  The increase in pricing was grounded more in economic optimism rather than any market fundamental.  This increase in oil prices also had an effect on natural gas pricing.  From July to August, the NYMEX strip price increased nearly 13 percent while the prompt month pricing increased by nearly 18 percent.

In our view the market will continue to bump along the bottom with occasional stints of short term and volatile spikes.  Electricity pricing tumbled over the past month with the largest decreases being reported in ERCOT and PJM West.  It is our belief the decreases are mainly attributable to a break in weather conditions with severe heat waves dissipating.  Look for prices to increase alongside rising thermometers for the month of August.