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Forecast: Near-Normal Fall Temps to Temper NatGas Bulls

The final quarter of 2009 will bring cooler-than-normal temperatures to much of the Southeast and Central United States, but above-normal temperatures will dominate key Northeast heating markets for two of the three months, a forecast that could temper bullishness in natural gas prices, according to a seasonal forecast from WSI Corp. of Andover, MA.

A moderate El Nino event -- the warming of surface temperatures in the central and eastern equatorial Pacific Ocean -- will probably continue through the winter, bringing cool weather across the Southeast, but current temperatures in the North Pacific are not supportive of a typical El Nino pattern, according to WSI seasonal forecaster Todd Crawford.

"If this persists, this winter will likely be colder in the western U.S. than is typical during El Nino events," Crawford said. "In the Northeast, we expect a relatively mild fall, with increased chances of sharply colder weather after the new year. The combination of various climate indices suggests that the winter will likely arrive late but loudly in much of the East, and that a mild start will not necessarily persist through the winter."

WSI's forecast for October calls for warmer-than-normal temperatures in the Northeast and Southwest, with colder-than-normal temperatures spread across the rest of the country.

"Early season cold in October may prompt mild heating demand in the North Central region, but warmer temperatures in the Northeast population centers may offset this. Cooler weather will not be enough to offset expectations of an early fill of natural gas inventories," Paul Fleming, Energy Security Analysis Inc. director of power and gas, said in a statement issued in conjunction with WSI's outlook. "If the hurricane season remains benign, natural gas storage inventories are expected to break the previous inventory record in October. We expect cash prices at Henry Hub to trade below $3.00 for a large portion of the month, forcing some production shut-ins. In the power markets, generator maintenance should overshadow weather variations in October."

The Northeast will experience colder-than-normal temperatures in November, while warmer-than-normal temperatures will move into the Northwest and the rest of the weather map will remain largely unchanged from October, WSI said. Colder-than-normal temperatures are forecast to remain in place across the nation's midsection.

"The cooler outlook as we enter the heating season will boost natural gas demand and could trigger an early start to inventory withdrawals," Fleming said. "In the power markets, generator maintenance will continue into November and will exert more influence on prices than nominally cooler temperatures in the November shoulder month. November should be moderately bullish for gas, although record high inventories will weigh on the market."

December will see a return to warmer-than-normal temperatures in the Northeast and North Central regions, with colder-than-normal temperatures taking over across the West, according to the WSI forecast. Warmer weather in the northern tier "will be disappointing for natural gas demand," Fleming said.

"Lower demand in early winter combined with high inventories will be very bearish for prices. Cooler-than-normal weather in the rest of the country will not likely provide a demand offset to lower demand in the key northern heating markets. Power prices in December could be moderated by continued weakness in the gas markets," Fleming said.

The latest El Nino arrived at the end of June, according to National Oceanic and Atmospheric Administration scientists (see NGI, July 13). El Nino events, which occur every two to five years and typically last about 12 months, are believed to affect a variety of North American weather patterns. Last month Crawford said the current El Nino event will play a part in weather patterns this winter (see NGI, Aug. 31).

"A weaker event centered farther east in the tropical Pacific will more likely enable a cold winter in much of the eastern U.S., while a stronger and more west-centered event would increase the odds of a very mild winter in the Northeast," Crawford said.

The WSI seasonal outlooks reference a standard 30-year norm (1971-2000). The next forecast, for November-February, is scheduled to be issued Oct. 19.

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