With the natural gas futures arena awaiting fundamental news to push it in one direction or the other, a just released WSI Corp. temperature forecast could have bulls bellying up to the bar in the near-term. According to the Andover, MA-based weather forecasting and business solution provider, the May-July period should average above normal temperatures for a majority of the U.S., except for the East.
In its seasonal outlook released last week, WSI expects the three month period to average warmer than normal across most of the country, with the exception of the major cities along the East Coast. The WSI seasonal outlooks reference a standard 30-year normal (1971-2000).
"Lingering effects from the weakening La Nina event will result in warm weather across most of the southern U.S. during May, with any below-normal temperatures generally confined to the northern tier of states," said WSI seasonal forecaster Dr. Todd Crawford. "By June and July, we feel that any below-normal temperatures will be confined to parts of the eastern U.S."
In the monthly breakdown, WSI is calling for warmer temperatures in the Southeast, the central portion of the country and the Southwest, while the Northeast and Northwest are expected to exhibit cooler than normal temperatures.
Analyzing the impact of the expected weather conditions on energy markets, Energy Security Analysis Inc. (ESAI) said early season warmth in the south will increase electric loads for air conditioning and will increase demand for natural gas from the electricity sector. However, ESAI said cooler weather in the key Northeast demand areas will extend the shoulder demand season in this region and provide some offset to demand in the southern regions for natural gas. "Planned power plant maintenance will continue into May but will drop rapidly as the month progresses," ESAI said. "The cooler temperatures in the Northeast will result in lower electric loads, moderating power prices during the maintenance period."
With the arrival of June, temperatures for the entire country are expected to be warmer than normal with the exception of the Southeast, which is expected to be cooler than normal.
"Warmer than normal temperatures will increase the potential for early season heat events and could result in higher demand for power and natural gas," ESAI said about the June forecast. "An early-season heat event would provide a bullish input for the natural gas market, despite the current high inventories." The analysis firm noted that cooler weather in the Southeast will not provide much offset to higher gas demand in the rest of the country, adding that planned power plant maintenance will be mostly complete by early June.
By the time July gets into full swing, WSI said the entire east will be experiencing cooler than normal temperatures while the central and western regions of the country will register warmer than normal temperatures.
"The warmer outlook for July is bullish for power prices in the western regions and will contribute to higher demand for natural gas," ESAI said. "Cooler temperatures in the major demand centers along the eastern seaboard will lower the probability of heat events and will result in moderate electric loads in the Northeast and Southeast regions. Overall, the July forecast is bearish for natural gas in light of the early season high inventories."
WSI's next new forecast package (for June-August) will be issued on May 16, with an update issued on May 25.
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