$700 Oil - The Price for Urgency
Byron King

Last week, the price of energy hit the equivalent of $700 per barrel.

As Americans pulled energy from every nook and cranny of different grids last Tuesday, Maryland’s Calvert Cliffs Nuclear Power Plant shut down. The problem was a nonnuclear electric malfunction, according to a Calvert spokesperson. Specifically, snow and ice formed over a ventilation louver. Over time, loss of cooling air tripped a circuit breaker. Calvert Cliffs went offline.

According to a report in the Baltimore Sun, electrical service to homes and businesses was not affected by the loss of Calvert. “Backup power systems are in place,” stated the paper. Well, yes and no.

The good news is that when Calvert Cliffs went down, other conventional fuel power stations in the region fired up to replace the lost nuclear power. The bad news is that the other power plants burn natural gas. So what happened?

The unanticipated demand for large volumes of natural gas to power electric generators — in the midst of a brutally cold winter heating season — sent prices for immediate delivery (known as the spot price) to a stunning level of $120 per 1,000 cubic feet (mcf) in some markets. By way of comparison, that price for gas is equivalent to an oil price over $700 per barrel.

Utility companies had a choice. Pay $120 per mcf or not have the gas with which to generate electricity. When you need it now, sometimes you pay the price for urgency.

This $120 price is exceptional. Still, this price spike illustrates how winter weather is affecting gas prices. At the end of last week, futures hit $5.18 per mcf, which is the highest level in 3 1/2 years. The price of natural gas has moved upward by 29% in the past two weeks and is 50% higher than this time last year.

Over time, gas prices will adjust downward, in all likelihood. Still, we’re continually learning how markets adjust rapidly and abruptly to unforeseen events, like the super-cold winter — not to mention losing a major energy asset like Calvert Cliffs, even for just a short time.

Over the past few months I've been addressing the investable side of this story with my paid-up readers of Outstanding Investments. Shale gas players, pipeline and transmission guys and a nice energy-efficiency play to boot! These companies are positioned to benefit from future energy issues.

$700 oil price point was worth mentioning – it's a head turner. It also shows how the price of a much-needed commodity can be squeezed up in relatively short order. A sign of the times? Be prepared for strange things moving ahead.

Thanks for reading. Best wishes…

Byron W. King

Byron received his Juris Doctor from the University of Pittsburgh School of Law, was a cum laude graduate of Harvard University, served on the staff of the Chief of Naval Operations and as a field historian with the Navy. Our resident energy and oil expert, Byron is the editor of Outstanding Investments and Energy and Scarcity Investor. Byron has made frequent appearances in mainstream media such as The Washington Post, MSN Money, Marketwatch.com, Fox Business News, CNBC's Squawk Box, Larry Kudlow, Glenn Beck and PBS Newshour. He also had a feature article written in the Financial Times, and has appeared on both CNN and Marketplace radio broadcasts. Byron has also been quoted in various international publications such as The Guardian and De Volkskrant, and has been a guest on Canada's CBC television broadcast.

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