WSI Energycast Outlook Calls for Cool Period in Northern States, Warm in Southeast

The monthly breakdown follows:

In September:

• Northeast – Cooler than normal, except NY/PA/NJ/MD/DE
• Southeast – Warmer than normal
• N Central – Warmer than normal, especially ND/MN
• S Central – Warmer than normal, especially TX
• Northwest – Cooler than normal
• Southwest – Warmer than normal, except CA

Expected Market Impact (provided by ESAI)
WSI’s forecast for September indicates slightly warmer-than-normal temperatures in the southern and central regions and cooler-than-normal temperatures in the Northeast and Northwest. Cooler temperatures in the Northeast will limit demand expectations for both electricity and gas demand from the power sector in that region. This will help to offset what could be higher-than-normal demand in Texas and the Southwest due to a warmer-than-normal temperature outlook. The net expectation would be for normal injections to storage, which will help to ease market fears of shortages in natural gas inventories prior to the winter.

In October:

• Northeast – Cooler than normal
• Southeast – Cooler than normal
• N Central – Cooler than normal, especially MT/ND/MN
• S Central – Cooler than normal
• Northwest – Warmer than normal, especially WA/OR
• Southwest – Warmer than normal, especially CA

Expected Market Impact (provided by ESAI)
WSI’s October forecast indicates cooler-than-normal temperatures in the eastern and central regions. October is a shoulder period or low demand month for both power and gas and temperature variances from normal have relatively low price impacts. The cooler-than-normal outlook in the eastern areas means that electric loads will be lower during the peak of the maintenance season. With lower load conditions, the impact of generator maintenance outages should be less pronounced. Hot weather in the first half of October can cause electricity price run-ups due to the high level of generator outages. The probability of this occurring is relatively low with the cooler-than-normal forecast. Injections of natural gas to storage should be stronger during most of October, although early season heating demand could develop in late October with a cooler forecast in the Northeast and North Central regions.

In November:

• Northeast – Cooler than normal
• Southeast – Warmer than normal
• N Central – Cooler than normal, especially IA/NE/SD
• S Central – Cooler than normal, especially OK/KS
• Northwest – Cooler than normal, except for WA/OR
• Southwest – Cooler than normal, except for CA

Expected Market Impact (provided by ESAI)
The WSI November forecast indicates cooler-than-normal temperatures in all regions except for the Southeast. A cooler-than-normal outlook for November in the Northern tier of the U.S. is somewhat bullish for the natural gas market as early season gas demand should be higher than normal at the beginning of the withdrawal season. Many market participants may extrapolate a cool November and higher early season demand into expectations of a cold winter, potentially driving prices higher. In the oil markets, heating oil inventories are building nicely, but again, a cool November could drive bullish speculation in heating oil prices. In recent market action, bullish oil moves have resulted in tandem moves in the natural gas and power markets.

According to WSI seasonal forecaster Dr. Todd Crawford, “Our seasonal forecasting models indicate a rather rude transition to fall across the northern states, particularly the northern Plains. There are strong cold signals in the northern Plains in October and November, with moderate cold signals in the Northeast in October.”

WSI successfully predicted (1) the hot summer in the Great Lakes/Ohio Valley in 2005, (2) the sharp transition to warm weather over the eastern US in June 2005, and (3) the cold and snowy winter of 2004-05 in the Northeast. Their three-month seasonal forecasts have been skillful for 8 out of the last 12 periods. A skillful seasonal forecast is defined as one that is closer to what is actually observed than a forecast using the 30-year average temperature.

WSI, which provides customized weather information to energy traders, issues its Seasonal Outlook twice monthly. The next forecast update for September-November will be issued on August 25, with the next new forecast package (for October-December) issued to clients on September 13 and to the press on September 20.

About WSI
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 is a wholly owned subsidiary of Landmark Communications. More information about WSI can be found at www.wsienergycast.com.

About ESAI
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, see www.esai.com.