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WSI Calls for Warmer than Normal U.S. Summer, Except Southeast Region

Andover, MA-based WSI Corp. said last week it expects the June-August period to average warmer than normal across most of the U.S., with the exception of parts of the Southeast. The company also predicts the country will see another active tropical storm season.

The bullish forecast, if it plays out, could end up helping to create a price bottom for front-month natural gas futures, which have experienced a $9.920 decline from the $15.780 peak of the Hurricane Katrina spike on Dec. 13, 2005. Earlier this month, natural gas futures put in a running low for the move of $5.860.

"After a cool May in much of the northern and eastern U.S., we expect the pattern to transition into a warmer regime for most locations just in time for summer," said Dr. Todd Crawford, a WSI seasonal forecaster. "Further, we do expect another active Atlantic tropical season due to warming tropical Atlantic Ocean temperatures and a lack of an El Nino event."

In its monthly temperature breakdown, WSI said it expects the entire country to exhibit warmer than normal temperatures with the exception of the North Central region and Idaho and Montana, which will be cooler than normal for the month.

Commenting on WSI's forecast for the month, Energy Security Analysis Inc. (ESAI) said early-season heat events are more likely to occur under a warmer-than-normal temperature forecast and this increases the potential for higher power and natural gas demand. "High natural gas demand in June could provide a bullish start to summer, but high inventories in storage will stall any significant upside moves in June," the energy analyst firm said. "Cooler weather in the North Central region will not provide any significant offset to higher gas demand in the rest of the country. Planned power plant maintenance will be mostly complete by early June."

Things really heat up with the arrival of July, according to WSI. During the month, the forecasting firm said it expects the entire country to experience warmer than normal conditions except for Georgia and Florida, which will be cooler than normal.

"The warmer outlook for July is bullish for power prices, as higher loads will be expected and the likelihood of extended heat events increases," ESAI said. "Higher demand for power will translate directly into higher demand for natural gas. Higher demand for natural gas in July will not be enough to offset high inventories, although, combined with the outlook for a warmer-than-normal August, warmer weather in July should be supportive to natural gas prices."

WSI forecasts August to be warmer than normal in most regions with the exception of the Southeast and the states of Arkansas, Louisiana, Wisconsin and Illinois, which are expected to be cooler than normal during the month.

"The warmer outlook for August is bullish for power prices due to higher loads and the higher likelihood of heat events," ESAI said. "In particular, the warmer outlook for August after a warm July also increases the likelihood of forced outages in many regions, which is bullish for power prices. Higher demand for power in August will result in additional natural gas demand. End of season inventories are forecast to be full by October, but high demand during the summer may delay the completion of the inventory fill and provide support to the currently bearish market."

WSI, which issues its seasonal outlook twice monthly, said the next new forecast package (July-September) will be issued on June 13.

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