Why Jim Roemer Predicted A Warm Winter for Natural Gas Prices Last December
One of our most accurate trade ideas this past season was selling natural gas. That warm winter projection was in our forecast for December. WeatherBell, and many other forecast firms, kept touting cold winter models. In my opinion, they also published erroneous theories that low solar activity is more important than a warming planet. I do acknowledge that I had been in the camp for some cold early winter weather in November. However, I quickly changed that view due to various global teleconnections. Here is an article I wrote a few months ago.
Why Did Natural Gas Prices Suddenly Rally in April?
Over the past few weeks, the pandemic spawned worries about global demand for both crude oil and natural gas. This helped to pressure these energy commodities to new lows, a week ago. I recently highlighted an energy opinion in my WEATHER WEALTH weekly commodity weather blog. In that comment, I stated that lower crude and natgas prices could curtail shale production and possibly boost energy prices. The recent $7/barrel rally in crude futures off the $19 spot contract lows wasn’t based on weather. It is more tied to feelings that OPEC and Russia will have a truce in their oil production war. Longer term, once this pandemic ends, crude prices are likely to sustain a more pronounced rally.
Regarding the weather, an early spring Midwest (and Northeast) cold spell in coming weeks created short covering.
The blue trough shown above is creating some excitement in the natgas market, even though winter is practically over. Nevertheless, New England snows and Plains temps in the teens and 20s next week have created some short covering. In addition to natural gas hedgers/speculators, traders in the wheat market will also be focusing in on this.
Temperatures next Tuesday and Wednesday could actually be colder than this possibly falling into the 20s across even southern Kansas. This will interest wheat market participants who will be closely following what transpires.
The Polar Vortex break-off is responsible for two bouts of eastern and Midwest cold I expect in the next fortnight. In part, this is due to the MJO.
The MJO’s cold phase is not the only factor replacing the Polar Vortex to the south. In my opinion, El Nino’s residual effect from last winter, and other teleconnections, caused the near record warm US winter. Now, many of those teleconnections are beginning to change.
What will summer be like? How might you be able to take advantage of the natural gas and grain market? You’ll learn the answers when you sign up for a free trial to my weekly GOLD PLAN blogs.
Those of you who are subscribers have heard me talk about a warm first part of winter for the US for weeks and hence a generally bearish outlook for natural gas prices. Stocks are huge and global weather, not just in Australia has been warmer than normal. Obviously, the situation in Australia is one for the record books and is due to a combination of Climate Change, the positive Indian Dipole and weak El Nino signal. These teleconnections have also affected US weather and has contradicted so many “global warming” deniers who keep pointing to low solar cycles as a reason for a cold winter.
Will things change for US natural gas areas? It all depends on two climatic variables I often look at: 1) Whether the EPO index turns negative (Right now it has been positive). A negative EPO index would build a ridge over Alaska and force cold weather back into the US.
We can see how some models have a negative EPO index heading deeper into January. What is the correlation with the EPO index? Jim Roemer’s unique CLIMATEPREDICT long range weather forecast program (used by many hedge funds, traders and agribusinesses), shows the historical trend and analogs with a negative late January EPO index.
However, at the bottom of this article are my projected analog years that have forecasted any cold US weather being short lived, since early December. This is not bullish for natural gas, even at close to $2.00
2) The MJO: Will it go into a colder phase or stay in a warm phase? History says that when the MJO goes into a strong phase 7-1, that this could make the EPO go negative and cause colder weather. A good definition of the MJO is here. You can see the MJO is trending towards the colder phases.
Finally, every time there has been a short term cold scare by models, it has not lasted due to a lack of US snow cover and also these teleconnections (stars) from our in house program CLIMATE PREDICT. Notice the warm weather that is suggested into early February. This is in contrast to some computer models.
The El Nino signal, global warming and my program (below), illustrate how we have out guessed standard cold computer models, which most meteorologists believe verbatim
BOTTOM LINE—Natural gas prices are likely NOT finished going down and it would not surprise me if any cold is short lived.
I have been discussing weeks for some energy and ski clients, why certain climatological parameters would likely bring warm weather, not only to the main US natural gas and heating oil areas, but also for much of western Europe.
Indeed, we have seen natural gas prices break some 20% over the last few weeks, while heating oil is under pressure versus the rest of the crude complex that has been pumped up by Iran-Iraq-US military tensions.
I still look for feet of snow for many western ski resorts the next 2 weeks or so with places like Whistler, Mt. Hood, Big Sky Montana and Jackson Hole getting into the action. The Lake Tahoe region to Utah will also get at least a couple feet of snow. Very cold temperatures will finally lower freezing levels in British Columbia, which was short changed on snowfall through most of December. The colder temperatures mean much higher snow:water equivalent ratios. Hence, some areas out west could see 3-5 feet of snow the next 2 weeks.
The stars and arrows on CLIMATEPREDICT (above) are the climatological variables that we used to predict the mild, early, eastern winter and cold and story out west. They are a negative AAO index, the positive Indian Dipole, responsible for the fires and extreme heat in Indonesia and particularly Australia, and also a warm NINO34, in which El Nino conditions persist in the western Pacific. While El Nino is weak, this is not something NOAA or many other firms are talking about.
You can see the jet stream pattern from short term weather forecast models. Again, this is something that CLIMATEPREDICT predicted more than a month ago.
The blue region represents cold temperatures. In fact, parts of the Pacific NW and western Canada will be as much as 15-20 degrees below normal, well into Mid January. The NW flow is ideal for snow in Oregon, British Columbia, Idaho, Washington State and places like Jackson Hole; not just for Tahoe to Utah and Colorado, which saw decent December snowfall.
I have received hundreds of requests from around the world for me to start a weekly or monthly long range weather subscription forecast service. This would be “SECOND TO NONE”‘ , given my 35 years experience forecasting for dozens of ski resorts, farmers and some hedge funds and investors. Of course, weather forecasting can be difficult and due to “chaos theory”, “global warming” and “solar activity”, things can change on a dime.
This is why I will be offering such a newsletter in the weeks or months ahead. It will focus on forecasting for many industries from skiing to commodities with some generic trading and investing ideas.
Coming sometime this winter, a new weather newsletter with occasional updates, (WEATHER-WEALTH) So check back frequently for details.
In the meantime, if you email me at firstname.lastname@example.org I would be happy enough to send you my preliminary winter outlook for 2019-2020.
While many weather forecasters try their hand at these long range predictions, I am lucky enough to also incorporate a special program called CLIMATECH, which I developed with an alum from MIT. It uses teleconnections such as El Nino, ocean temperatures thousands of miles away, what is happening over the North and South Poles, etc. to help make predictions.
IN THIS FREE REPORT I WILL SEND YOU:
*Why late November will feature more cold and snow for the Midwest and East and is putting a floor in natural gas prices and heating oil spreads. What may December be like?
*Low solar activity; El Nino Modoki; Stratospheric Warming; Weather Weirdos, CLIMATECH ™ what this means for winter and the energy markets.
Why does the current global climate support a weather situation similar to 1966 sometime in early to mid 2020? A severe 2nd half of winter in the US.
I have received numerous questions around the world from natural gas producers, hedgers, traders and even some pipeline operators, what my official long range weather forecast is for the northern hemisphere winter.
To see a preview of my winter outlook in the next week, please register for free blogs and reports here.Right now, I feel at least the first half of winter will be warmer than normal with a chance that the late winter or spring will be cold. Natural gas prices should come under pressure this winter.
In the meantime, as of this writing (November 12th), some energy traders are baffled as to why natural gas prices have sold off 10% this week, following a stellar early November bull move on extreme US cold. However, prices should be rallying back again soon due to the on going record cold and some suggests of a return to cold late November weather.
The graphic of the Polar Vortex at the top of this page helped create a major short covering rally in natural gas prices a week ago. However, record low sea ice and other climatic factors will be easing the US cold deeper into November and one reason why prices sold off earlier this week. Nevertheless, weather maps still suggest some cold late November weather in the eastern US and the recent cold may inspire a friendly EIA number this week. Hence, without major prolonged warm weather, nat gas prices will remain volatile.
Arctic sea ice is one of the most dramatic indicators of the changing climate. Ice cover on the Arctic Ocean is in some months about half what it was decades ago, and its thickness has shrunk, by some estimates 40 percent.
Natural gas prices will remain volatile. December weather will of course be key.
The record cold (above) earlier this week helped to rally wheat prices (some crop damage in the Plains) and was anticipated a week ago in the natural gas market. -Jim
While there will be some more cold in the eastern US weather and a few bouts of snow could still develop over the next week or two, one can see that natural gas stocks are still well above the 5 year average (chart, below). Hence, for us to sustain a major rally in natural gas prices, we need to see consistent major cold, the polar vortex return by December and for there to be a panic by producers and hedgers.
Heating oil vs gasoline and crude prices will also be influenced by winter weather.
While El Nino does, low solar activity and many other factors will influence winter weather and natural gas and heating oil prices. Sometimes, a warming Arctic can displace the polar vortex and send extreme cold south either in the US, Europe or Asia. This is what is happening early this week.
So what is my winter forecast and will the polar vortex return? I will be offering trading ideas and long range forecasts soon with a paid monthly newsletter subscription and occasional flash weekly updates. Stay tuned for details.–Jim Roemer
New Orleans and Texas are no stranger to hurricanes. Hurricane Katrina in August, 2005 created one of the worst national disasters in history, while two years ago, the city of Houston witnessed more than 30″ of rain that temporarily put the nation’s refinery capacity out of commission. But how might tropical storm Barry affect commodities and especially the energy markets?
In this report below I discuss the implications to the energy market from tropical storm Barry, and what a weakening El Nino Modoki might portend for this hurricane season.
TROPICAL STORM BARRY
There remains the potential for some amount of storm surge to work its way up the Mississippi toward New Orleans, although this threat is diminishing as Barry struggles to organize. Still, the Mississippi has experienced record-prolonged flooding this year, and the arrival of an early-season tropical cyclone atop late-season flooding is an unusual and concerning prospect.
The Mississippi River, which is usually at 6 to 8 feet around New Orleans this time of year, it is at 16 feet after a year of record flooding. And 10-15+ more inches of rain are on the way.
So what might be the implications for the energy markets? First of all, with respect to natural gas, prices have been under pressure since the end of winter due to a mild late winter and spring. Only recently have prices rebounded off three year lows, due in part to some hot Midwestern and eastern weather and the psychology of a potential hot summer. However, a tropical storm, if anything can actually hurt demand for natural gas in the South. Unlike the Pre-Katrina years, close to 80% of natural gas production is from shale and not in the Gulf of Mexico. Hence, Barry will have little affect in the market, even though there are some short term shut-downs in the Gulf. Hot weather is driving natural gas prices higher, for the moment.
CRUDE OIL, GASOLINE AND HEATING OIL
Hurricanes are simply not as bullish as they once were, unless you have a Hurricane Harvey situation (one in a 50 year event) the floods refineries for days on end. Even during Harvey in 2017, you saw crude oil prices collapse, while gasoline rallied due to refinery issues. While an estimated 53% of Gulf oil production is shut down, without major hurricane force winds, oil rigs in the Gulf can easily withstand just heavy rains and high seas for a couple days. With respect to crude oil, demand curtailment, from slow to return refinery problems, actually can be “bearish” the crude oil market. That is what happened in 2017 with Harvey as crude oil prices collapsed for several days, while gasoline prices soared due to refinery issues.
The map above shows the location of the majority of US oil rigs. It is much more important to the crude oil market what OPEC ends up doing with respect to their projected production cuts, as well as the global demand part of the equation and whether American shale production continues booming head.
There can be knee-jerk reactions in the energy markets from tropical storms and hurricanes, but often it is “buy the rumor”, sell the fact. Nevertheless, instances like during Hurricane Harvey can create major price spikes in gasoline because it hit during the heart of the summer vacation driving season and put many refineries in Texas out of commission for days. For an interesting article about Harvey and the surge in gas prices, click here
WHAT IS EL NINO MODOKI AND A LOOK AT SOME POTENTIAL HURRICANE ANALOG YEARS
El Nino is weakening and that could enhance this season’s hurricane season because it reduces shear in the Gulf coast and Atlantic. Ocean temperatures in the eastern Equatorial Pacific, (near Peru) are cooler than normal, whereas in the western Pacific it is still warmer than normal. This is a bit unusual as most El Nino’s see warmer than normal sea surface temperatures closer to the West coast of South America. These warmer waters typically cause shear and reduce hurricane activity. The fact that hurricane Florence and David were so intense last year, was a sign that El Nino was weak last year and slow to develop.
I took a look at 4 particular El Nino Modoki events since 1950 that seemed somewhat similar to today–An El Nino Mokadi that is slowly weakening and may even become a La Nina or El Nino neutral event by fall or winter.
The years I found were 1958, 1980, 1992 and of course the infamous historical 2005 hurricane season.
–1958 had 11 named storms, in which 3 were major hurricanes. Most of these tropical storms or hurricanes “missed” the United States, though there were a couple tropical storms that hit Texas.
–1980 was the year of an infamous spring and summer drought across much of the country, following the eruption of Mt. Helen. Quite a contrast to this year’s historical wet spring and severe weather season. Nevertheless, here too there were 11 names storms and two major hurricanes.
–1992 was a weak hurricane season with only 6 named storms. However, hurricane Andrew was a category 5 that wiped out south Florida and then the Gulf of Mexico (it only takes one). However, ocean temperatures then were a lot cooler than they are today.
–Finally, 2005 had a record 28 named storms and 7 where major hurricanes with many of them hitting the United States.
(map above) Plenty of warm water temperatures presently in the Gulf of Mexico and the Eastern Atlantic. The cool (blue) temperatures off the coast of West Africa could retard tropical waves coming off the West coast of Africa again this summer. This existed last year and was responsible for an inactive first half of the season.
BOTTOM LINE–With El Nino weakening and warm Gulf and Atlantic ocean currents , most of the analog years listed above , suggest a normal to active hurricane season with the potential for at least 3 major hurricanes later this summer and fall. Three of the 4 analog years listed above had at least one modest to major hurricane hitting the United States with the greatest risk being Florida and/or the Gulf.
WEAKENING EL NINO MODOKI YEARS AND ASSOCIATED TROPICAL STORM AND HURRICANE TRACKS (BELOW)