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

The monthly breakdown follows:

In January:

• Northeast – Cooler than normal, especially NY/PA/MD
• Southeast – Cooler than normal, especially NC/SC/VA
• N Central – Warmer than normal, with exception of WI/IL
• S Central – Warmer than normal, with exception of TX
• Northwest – Warmer than normal, especially WA
• Southwest – Warmer than normal

Effects in the Marketplace
WSI’s forecast for January indicates cooler-than-normal temperatures in the Northeast and Southeast states. The Northeast states have a heavy winter gas demand for heating in addition to the power sector demand. Basis spreads to Henry Hub can widen dramatically during extremely cold weather as gas pipeline constraints can cause delivered prices in the Northeast to escalate rapidly. Warmer-than-normal weather in the rest of the country should significantly lower average demand in January and may keep market price volatility in check. Heating oil demand concerns have eased a bit as inventories have built on increased refinery production. Power prices could escalate but primarily on the back of higher fuel prices.

In February:

• Northeast – Cooler than normal
• Southeast – Cooler than normal, especially GA/FL
• N Central – Warmer than normal
• S Central – Cooler than normal, with exception of KS
• Northwest – Warmer than normal, especially ID/MT
• Southwest – Warmer than normal

Effects in the Marketplace
WSI’s forecast for February indicates warmer-than-normal temperatures in the North Central, Northwest and Southwest states. In the more demand-intensive Northeast states, WSI’s forecast for cooler-than-normal temperatures is bullish for natural gas demand. Natural gas pipeline constraints remain an issue in February during extreme cold weather. Overall demand for natural gas should be moderated by the warmer-than-normal temperatures in the Central and Western regions. Heating oil demand is dominated by the Northeast where the cooler temperature outlook will have a bullish impact on demand.

In March:

• Northeast – Warmer than normal, especially NY
• Southeast – Warmer than normal, with exception of FL
• N Central – Warmer than normal, especially WI/MI/IL
• S Central – Warmer than normal
• Northwest – Warmer than normal
• Southwest – Warmer than normal, with exception of CO/UT

Effects in the Marketplace
WSI’s forecast for March indicates warmer-than-normal temperatures throughout the U.S., particularly in the N. Central and Northeast demand areas for natural gas and heating oil. Perceived demand in March has a major impact on markets as cold weather in January and February could leave inventories lean. A warmer outlook for March relieves end-season supply concerns and will be a bearish factor in the midst of the bullish, cooler-than-normal outlooks for January and February.

According to WSI seasonal forecaster Dr. Todd Crawford, “Our forecast models continue to indicate that the remainder of the winter will average out to be colder than normal in the East and warmer than normal in the West. The model output for this period has been quite consistent since our original winter forecast in October.”

WSI successfully predicted (1) the mild November 2004 in the northern US, (2) the unusually cold January 2004 in much of the eastern US, and (3) a cool 2003 summer in the Southeast and mid-Atlantic. 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 January-March will be issued on December 30, with the next new forecast package (for February-April) issued to clients on January 18 and to the press on January 25.

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.