US gas traders remain pessimistic as warmer weather crimps demand

12/1/2015

By BRIAN K. SULLIVAN
Bloomberg

If you saw the snow pile up in Chicago recently or the flurries descend on the Patriots-Broncos football game in Denver, it’d be easy to conclude that it’s gotten cold in the US.

As far as natural gas traders are concerned, November wasn’t cold at all and December looks like more of the same. At least that’s the case in the parts of the US where temperatures affect natural gas demand and prices. In terms of heating days, November has been one of the warmest in the last 15 years, said Matt Rogers, president of Commodity Weather Group in Bethesda, Maryland.

Meteorologists, traders and the US government use a scale known as the heating degree days value to measure the impact of temperatures on people and markets. Basically, you start with a base of 65 degrees Fahrenheit (18 Celsius) and subtract the daily average temperature. The result speaks directly to how much money will be spent or saved on energy costs in a given area.

The natural gas-weighted heating degrees days value for November through Monday morning was 472.9. That was a far cry from the coldest November in the last 15 years -- 2000 -- which had a value of 662.8 and not quite as warm as 2001, which came in at 432.2.

Taking a closer look at Chicago’s O’Hare International Airport, where more than 11 inches of snow fell from Nov. 20-21, the average monthly temperature through Sunday was 4.1 degrees above normal and the heating degree days value was 124 below a normal November, the National Weather Service said.

Official Start

While November’s warmth did little to help the gas market, the heart of the winter begins Tuesday with the start of December, said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.

December stands a good chance of being mild, especially across the Midwest and Northeast where a lot of gas is typically burned to keep people warm, according to the US Climate Prediction Center in College Park, Maryland.

“From a weather perspective, the aggregate November pattern is expected to persist into December, with widespread and significant above-normal temperatures across the major gas-heating regions of the north-central and northeastern U.S.,” said Todd Crawford, principal scientist at WSI in Andover, Massachusetts. Cold snaps could break out here and there, Crawford said, though there will be “nothing with any staying power.”

Gloomy Outlook

For gas producers looking to bring back online wells shuttered during the summer, the forecast is grim, Viswanath said. It is equally bad for traders looking for the weather to provide support for prices, which slid to a three-year low in October.

The rest of the winter is also forecast to be pretty mild because of the strong El Nino in the Pacific. The climate phenomenon disrupts weather patterns over the US and often brings milder temperatures across the northern states.

One of the things that might usher in some cold is if the polar vortex begins to weaken and allows frigid air to spill into the eastern US, Crawford said.

So far that’s not happening.

“The pattern is rather bleak for market bulls, I’m afraid,” Crawford said.