WSI Energycast Outlook Calls for Cold December, Warm January in the Eastern US
WSI and ESAI issue an update of special interest to energy traders
Andover, MA, November 25, 2008 - WSI Corporation issued the seasonal outlook for the upcoming three-month period (December-February) on November 18. WSI expects the upcoming three-month period to average colder than normal across the northern and western US, with above-normal temperatures confined to the Southeast. The WSI seasonal outlooks reference a standard 30-year normal (1971-2000).
The monthly breakdown for the upcoming fall season follows:
In December:
- Northeast - Colder than normal
- Southeast - Colder than normal
- N Central - Colder than normal, except IA/NE
- S Central -Warmer than normal
- Northwest - Warmer than normal, except MT
- Southwest - Warmer than normal
Expected Market Impact (provided by ESAI)
The WSI December forecast indicates colder-than-normal temperatures in
key Northeast and North Central regions; much colder-than-normal temperatures
are expected in New York, New England, and eastern portions of PJM. Delivered
natural gas prices as well as power prices are likely to get a boost from
this early-season cold weather. With No. 6 fuel oil generally trading
at a discount to delivered natural gas, however, fuel switching for power
generation is also likely. This marginal reduction in natural gas demand
may help to soften basis spikes associated with the colder-than-normal
temperatures in December. In addition, with fuel oil trading lower than
natural gas implied on-peak market heat rates will be slightly lower than
otherwise in the regions that have fuel-switching capabilities. Temperatures
are generally expected to be warmer-than-normal west of the Mississippi
with the warmest temperatures expected in western Texas and New Mexico.
The reduction in natural gas demand in these sparsely populated areas
is unlikely to offset the increases in the Northeast; Henry Hub prices
are likely to be slightly firm in December as a result.
In January:
- Northeast - Warmer than normal
- Southeast -Warmer than normal
- N Central - Warmer than normal
- S Central - Warmer than normal
- Northwest - Colder than normal
- Southwest - Colder than normal
Expected Market Impact (provided by
ESAI)
The WSI January forecast indicates warmer-than-normal temperatures in
the key heating regions across the northern tier of the country; with
much warmer-than-normal temperatures expected in the South. This will
significantly reduce natural gas demand used for power and heating in
the Consuming East. This will also keep prices in check in January and
keep withdrawal rates from underground storage lower than normal. The
rally that we expect to materialize from December’s cold temperatures
will likely evaporate with January’s mild temperatures. Electrical
loads will be lower than normal in the northern states, a bearish development
for power prices and implied on-peak market heat rates in New England,
New York, and PJM. The same cannot be said of the area west of the Rockies,
however. With colder than normal temperatures expected in the West (particularly
the on the West Coast), western basis and power prices are likely to get
a boost from the colder-than-normal temperatures and the higher-than-normal
electrical loads.
In February:
- Northeast - Colder than normal
- Southeast - Warmer than normal
- N Central - Colder than normal
- S Central - Warmer than normal
- Northwest - Colder than normal
- Southwest - Colder than normal
Expected Market Impact (provided by
ESAI)
The WSI February forecast indicates colder-than-normal temperatures along
the West Coast and northern tier of the country and warmer-than-normal
temperatures in the South. This will be bullish for natural gas prices,
which will likely have softened in January due to the mild weather. The
colder-than-normal weather in the Consuming East will also increase withdrawal
rates from storage, and help burn off some of the surplus to the 5-year
average which is likely to have developed with the mild January. Electrical
loads along the Northeast will likely be higher in February than they
were in January, pushing gas and power prices higher. Assuming oil prices
remain at currently levels, increases in implied on-peak market heat rates
will likely to be muted by fuel switching. Power prices will likely remain
high in the Northwest and in California on higher heating demand in February.
According to WSI seasonal forecaster Dr. Todd Crawford, “The current cold pattern in the northeastern US should persist through at least the first half of December. A temporary transition to a mild pattern should occur from January into early February, before the pattern reverts back to a much colder regime during the last weeks of winter. The current configuration of the very cold North Pacific ocean temperatures and wind patterns in the tropical Pacific should result in a cold winter in the Northwest and a warm winter in the Southeast. The Northeast will likely experience more subseasonal variability than other regions this winter.”
WSI, which provides customized weather information to energy traders, issues its seasonal outlook twice-monthly. The next new forecast package (for January-March) issued on December 16.
About WSI Corporation
WSI Corporation is the world's leading provider of weather-driven business solutions
for professionals in the energy, aviation, and media markets, and multiple federal
and state government agencies. WSI is headquartered in Andover, Massachusetts
with offices in Birmingham, England, and was recently purchased by a consortium
made up of NBC Universal and the private equity firms The Blackstone Group and
Bain Capital. More information about WSI can be found at www.wsi.com.
About ESAI Corporation
Since its inception in 1984, Energy Security Analysis Inc. (ESAI) has been dedicated
to monitoring, analyzing, and synthesizing information about world-wide energy
markets. Tapping the talents of its senior-level staff, ESAI provides clients
with unparalleled insight into where the markets have been and where they are
headed. ESAI provides ongoing systematic analysis of energy prices in the oil,
natural gas, and energy markets. For more information on ESAI services visit
www.esai.com
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