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WSI's Seasonal Forecast Calls for Warm March, Cool May

While this winter has been milder than normal in many areas of the country, WSI Corp. said the Northeast could experience a chill this spring. In the company's just released seasonal forecast for March through May, the forecaster expects the period to average cooler-than-normal temperatures generally north of a boundary that extends from Spokane, WA to Dallas, TX to Washington, DC.

In referencing a standard 30-year normal (1971-2000), WSI said that warmer-than-normal temperatures will be prevalent elsewhere during the three month period.

"Our latest forecast models indicate that a warm March will be followed a very cool April and May across the northern U.S.," said WSI seasonal forecaster Todd Crawford. "The southern states should warm up and dry out significantly in April and May."

In the monthly forecast breakdown, WSI said March will be warmer than normal throughout the country except for Maine and most of the Southwest. Nevada and Utah are expected to buck the Southwest trend and not be cooler than normal during the month.

"The warmer temperatures in the principal northern gas demand areas should continue to put bearish fundamental pressure on natural gas prices," Energy Security Analysis Inc. (ESAI) said, noting that natural gas inventories are already 20% higher than the five-year average. "With electrical loads moderating in March, the associated reduction in power generation demand is expected to exacerbate the already bearish fundamental picture. We expect these factors will conspire with the warmer than normal temperatures to pressure natural gas and on-peak power prices throughout the U.S."

The month of April will see some cooler temperatures moving into the area, although the Northeast (except Maine), Northwest (except Idaho and Montana) and Southwest still will likely be warmer than normal. The Southeast and the center of the country is expected to be cooler than normal for the month.

Noting that April is a shoulder month for both natural gas and power demand, ESAI said natural gas inventories are likely to remain above average coming into the month. The company said it expects bearish fundamentals to "dominate" in April. "We add, however, that with cooler-than-normal temperatures expected for much of the remainder of the U.S., the price picture is a little mixed, and the downside may be limited," ESAI said. "Power prices are not as responsive to temperature variations during this period, but should find some support from scheduled generator maintenance programs. We expect somewhat lower, but well supported power prices in April."

In May, WSI looks for cooler than normal temperatures to sweep the Northeast, Southwest and the central portion of the country, while the Southeast (except North Carolina and Tennessee) and the Northwest (except Idaho and Montana) are expected to be warmer than normal.

ESAI said the price weakness forecast for April will end by May. "In fact, Contango has already set into the natural gas forward curve, with prices rising each month through January 2006," ESAI said. "It is extraordinary to see Contango in the curve this early; and demonstrates a general weakness in prompt-month contracts relative to the summer contracts."

Noting that temperature variations typically play a minor role in May, ESAI said it believes that the widespread cooler-than-normal temperatures that are expected this May will have "minimal impact" on what is expected to be a bullish start to the injection season.

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