HDD

The Energy Information Administration (EIA) recently changed the weather forecast methodology for one of its most important energy models — the Short-Term Energy Outlook (STEO) — and while we talk about the effects of weather on energy markets fairly often (571 times in the past 12 years, or about once a week, but who’s counting?), we rarely take a step back and explain how those weather forecasts are used. In today’s RBN blog, we look at different approaches to weather forecasting, the recent change made by the EIA, and how the new approach might affect our understanding of EIA forecasts.

The mild winter in the U.S. thus far has created a balancing nightmare for the natural gas market. A freakishly warm December has meant below-average withdrawals and contributed to a record storage surplus over last winter’s levels. Not surprisingly, natural gas futures prices have been struggling under the weight of this surplus. However, a closer look at gas consumption over the past few weeks shows some underlying demand strength despite the warm weather. Today we take a closer look at where gas demand is coming from.

Last week (May 3 2013) a very late winter snowstorm crossed the Rocky Mountains into the upper Midwest, dropping over a foot of spring snow from Colorado to Wisconsin.  So-called winter Storm Achilles smashed snowfall records across the Upper Midwest. The storm was only the second May snowstorm on record for Kansas City and Des Moines.  Today we look at the impact of this year’s late winter weather on energy markets.

Front month NYMEX natural gas prices reached a twelve-month high of $3.76/MMBtu this past Wednesday - falling back to $3.70/MMBtu yesterday. NYMEX prices have been on a rising trend ever since they dipped under $2/MMBtu back in April of this year but can they sustain that momentum?  The most important factor in answering that question over the next 4 months will be the weather. More specifically, will there be a winter this year and how much gas is withdrawn from storage as a result of the cold weather. Yesterday the EIA announced the first natural gas storage withdrawal of this winter.  Today we examine the start of the storage withdrawal season.

With natural gas storage at record levels in early June, it looks like it’s going to be a long summer for gas producers hoping for better prices. The most important factor will be hot weather, or lack thereof.   Temperatures this summer will have a significant impact on how much of that gas in storage is put to use for electric power generation. In today’s blog we’ll work through the degree day numbers and explain how a milder than usual summer could impact storage levels.