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WSI Forecast: Cold, Colder, Coldest Months Ahead

Cold weather will dominate the West over the next three months, while warmer-than-normal temperatures that are expected to be in place in the Northeast in January will move out of much of the region in February and colder-than-normal air will be firmly in control by March, according to forecaster WSI Corp. of Andover, MA.

"The cold pattern observed in the eastern U.S. during much of November and December will begin to retrogress westward and northward by late December and into early January, so that the coldest temperatures will become centered in the western and north-central U.S. by January," said WSI seasonal forecaster Todd Crawford. "Most of the East should be quite mild in January, before the pattern shifts again in February and March to allow for below-normal temperatures to return to the Northeast. The Southeast should generally remain quite mild during the January-March period, while much of the West will be unusually cold. Current oceanic and atmospheric indicators are quite similar to those observed during the winters of the early 1960s, when cold western U.S. winters were commonplace. The Northeast will continue to experience larger-than-normal subseasonal variability than other regions this winter, especially in February and March, similar to what has been observed so far in December."

In its Energycast Outlook for January WSI forecast warmer-than-normal temperatures across the East and South Central regions, with colder-than-normal temperatures forecast across the West and North Central regions, except Wisconsin, Illinois and Michigan.

Energy Security Analysis Inc. (ESAI) said natural gas and power prices in January are likely to remain soft east of the Mississippi, particularly in New York, New England and the PJM Interconnection service area, where natural gas basis prices play a key role during the heart of winter. With low-sulfur No. 6 fuel oil trading at a discount to delivered natural gas, fuel switching for power generation is likely to soften demand for natural gas and pressure heat rates, particularly in the Northeast. ESAI said implied on-peak market heat rates will be lower than otherwise in regions that have fuel-switching capabilities. The marginal reduction in natural gas demand, combined with warmer-than-normal temperatures in the South, is likely to keep Henry Hub prices subdued through January, according to ESAI.

Natural gas and power prices are likely to firm in January in California, where the widespread unseasonably cold weather will boost demand for heating, ESAI said. With gas inventories in the Consuming West 2% above last year's levels and nearly 12% above the five-year average, the gas market remains well supplied and able to handle the increase in demand, it added.

By February colder-than-normal temperatures will have moved into the Northeast, except New Jersey, Delaware and Maryland, and will still dominate the West and North Central regions of the country, WSI said. It expects warmer-than-normal temperatures to remain in place over the Southeast and South Central regions.

While the temperatures forecast for February could boost power and gas demand and prices, the effect of a warmer-than-normal January in the Consuming East is likely to leave the market well supplied for February, according to ESAI. Significant basis spikes are unlikely in the Northeast on all but the coldest days and, with warmer-than-normal temperatures reaching as far north as Pennsylvania, basis strength is likely to be limited to Transco Zone 6-New York and the Algonquin citygate, ESAI said.

The cumulative effect on the Consuming West of a colder-than-normal January followed by a colder-than-normal February will likely draw down the currently high storage surplus to the five-year average, possibly leaving the region vulnerable to higher gas prices should the cold weather last longer or temperatures be colder than expected, ESAI said.

Colder-than-normal temperatures will have a grip on much of the country in March, with warmer-than-normal temperatures expected only in the Southeast (except Mississippi), according to the WSI forecast. Much colder-than-normal temperatures are expected to linger in the Northwest and California.

With the warmer-than-normal January and competitive fuel oil pricing, the Northeast should be in a good position to withstand the late-season cold, according to ESAI. Still, as surplus supply is burned off, natural gas prices are likely to firm from the depressed levels of December and January. Demand will increase, boosting basis prices in New York, New England and the Upper Midwest. After three months of colder-than-normal temperatures, California and the Consuming West will likely be running thin on gas inventories and could be looking at a sizable basis premium (and even a supply problem) by March, ESAI said.

The WSI seasonal outlooks reference a standard 30-year norm (1971-2000). The next forecast, for February-April, is scheduled to be issued Jan. 13.

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