WSI Energycast Outlook Calls for Cold Period in Eastern and Southern US, Warm in Western and Northern US

The monthly breakdown follows:

In November:

• Northeast – Warmer than normal
• Southeast – Cooler than normal, with exception of FL
• N Central – Warmer than normal
• S Central – Cooler than normal
• Northwest – Warmer than normal, with exception of WA
• Southwest – Warmer than normal

Effects in the Marketplace
WSI’s forecast indicates warmer-than-normal temperatures in November for the Northeast, North Central, Northwest and Southwest states. November is a shoulder demand period for power and gas, however, demand can pick up on cooler weather. The warmer-than-normal outlook for November in most regions should dampen any early season demand effects and should be slightly bearish for the natural gas and power markets.

In December:

• Northeast – Cooler than normal
• Southeast – Cooler than normal, especially FL
• N Central – Warmer than normal, especially ND/MN
• S Central – Cooler than normal, especially TX
• Northwest – Warmer than normal, especially WA
• Southwest – Warmer than normal, except for AZ/NM

Effects in the Marketplace
WSI’s forecast for December indicates cooler-than-normal temperatures in the Northeast, Southeast and South Central states. As the natural gas market shifts to a concerted drawdown mode, above-normal heating demand in December could cause the market concern over higher rates of drawdown for natural gas. This is bullish as the market could take this as indicative of a longer-term trend. High natural gas inventories should help to moderate the effects of this concern, however, other trading effects have overshadowed storage fundamentals. Higher oil prices due to heating oil concerns as well as higher natural gas prices will translate directly into higher power prices.

In January:

• Northeast – Cooler than normal, especially New England
• Southeast – Cooler than normal
• N Central – Warmer than normal
• S Central – Cooler than normal
• Northwest – Warmer than normal, especially WA/OR
• Southwest – Warmer than normal, especially AZ/CA

Effects in the Marketplace
WSI’s forecast for January indicates warmer-than-normal temperatures in the North Central, Northwest and Southwest states. In the more demand-intensive Northeast and North Central states, WSI’s forecast for cooler-than-normal temperatures is bullish for natural gas demand. Any extended periods of cold weather could cause delivered natural gas prices (basis spreads) to soar due to local pipeline transmission constraints. Power prices will move higher on the back of any fuel price increases, however, winter peak demand is typically significantly lower than summer peak demand.

According to WSI seasonal forecaster Dr. Todd Crawford, “After a relatively mild November, we expect colder-than-normal temperatures to develop in the East and ridging and warmer-than-normal temperatures in the West. We expect a pattern somewhat similar to the winter of 2002-03, although we do expect this pattern to emerge somewhat later than it did in 2002, when the pattern for the winter had locked in by late October.”

WSI successfully predicted (1) the unusually cold January 2004 in much of the eastern US, (2) a cool 2003 summer in the Southeast and mid-Atlantic, and (3) a cold ‘02-‘03 winter in the Southeast. Their three-month seasonal forecasts have been skillful for 7 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 November-January will be issued on October 28, with the next new forecast package (for December-February) issued to clients on November 16 and to the press on November 23.

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.