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WSI Expects Generally Warm December; NOAA Highlights Cold Winter for East

WSI Expects Generally Warm December; NOAA Highlights Cold Winter for East

WSI Corp. released a winter weather forecast last week that is bearish for natural gas prices in December when warmer temperatures are expected across most of the nation except for the North Central region.

The forecast turns somewhat bullish after New Years with colder than normal temperatures expected in January in the North Central and in January and February in the Northeast and Southeast.

"Warmer than normal temperatures [in December] will translate to moderate demand for natural gas and should help to ease prices as start of season inventories are very high," Energy Security Analysis Inc. (ESAI) said in an analysis of the WSI forecast. "Power demand should, likewise, be moderate in all regions and lower gas prices should keep power prices moderate."

However, January should bring a shift to colder weather in the Northeast, Southeast and Midwest. "These areas have the most robust natural gas demand, and the cooler temperatures will increase the draw on reserves," ESAI said. "The biggest concern is the basis spreads to the Henry Hub during extremely cold weather when gas pipeline constraints can cause delivered prices in the Northeast to escalate rapidly."

ESAI also noted that heating oil demand could be a concern in the Northeast because of lower than average inventories. ESAI said colder weather in January will be bullish for heating oil prices. Power prices also could increase based on fuel costs.

In February, the WSI forecast also is bullish for natural gas because it calls for colder than normal temperatures in the demand intensive Northeast states. However, WSI expects temperatures in the Midwest to turn warmer in February, which could offset the Northeast demand strength.

Meanwhile, the National Oceanic and Atmospheric Administration (NOAA) released its final winter weather outlook basically matching what WSI has predicted for most of the East and West. However, NOAA calls for equal chances of above or below temperatures in the Midcontinent, Midwest and Northeast.

The government agency believes the current weak El Nino will lead to a warm winter in the West, a cold winter in the South, Southeast and Mid Atlantic, and equal chances for colder or warmer than normal temperatures across the rest of the nation.

NOAA highlighted the "enhanced likelihood of cooler-than-average temperatures in much of the East, Middle Atlantic and South; warmer-than-average temperatures in Alaska, Hawaii and the West; wetter-than-average conditions from New Mexico through Texas to Louisiana; and drier-than-average conditions over the Ohio Valley and the Northwest this winter." It cited the threat of possibly "worsening dryness in the Northwest and Ohio Valley."

The agency said it expects a continuation of a weak El Nino event in the tropical Pacific into 2005. "This event is expected to continue into early 2005, but remain much weaker than they 1997-1998 El Nino that greatly affected parts of California," said Wayne Higgins, principal scientist at NOAA's Climate Prediction Center.

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