Winter Forecasts Predict Increased Demand for NatGas

Forecasts Indicate a Colder Winter

Recent reports from the Energy Information Administration and the Natural Gas Supply Association predict colder winter weather for the Lower 48. This suggests that heating demand could increase, potentially boosting NatGas prices that have been in a multi-year slump due to high supplies and unusually warm weather. The EIA report, cited by Bloomberg, predicts a 5% increase in NatGas demand among US households based on cold weather forecasts for the upcoming winter season. This could mean higher power bills for households in the coming months. The EIA stated, "We assume this winter will be colder than the last winter across much of the country, especially in the Midwest."

Good News for Energy Bulls

Bloomberg noted that the EIA's cold weather forecast is positive news for energy bulls. NatGas prices are currently almost 20% lower than they were at this time last year, following an unusually mild winter that left high supplies in inventory. High production levels have also been a factor, as drillers have capitalized on a significant oil rally, which has led to increased gas output in shale fields. The NGSA, in a separate report earlier this month, stated that the November-March timeframe is expected to be 7% colder than last year. Based on these colder temperatures, the group anticipates a 14% increase in residential and commercial demand and a 7% increase in industrial demand. The NGSA noted, "With rising demand expected to place upward pressure on natural gas prices, power demand could decrease compared to last winter's numbers and less temporary economically-motivated switching from gas-to-coal."

NatGas Futures Trading

NatGas futures trading in New York has been range-bound, fluctuating between $3.5/MMBtu and $1.5 for nearly two years. Last month, the North American Electric Reliability expressed concerns about maintaining sufficient natural gas supplies to address extreme winter conditions.

Winter Predictions

The 208th edition of the Farmers' Almanac, published in mid-August, noted a lot of precipitation and storms, depending on location, in its "Wet Winter Whirlwind" forecast. Gary Cunningham, director of market research at Tradition Energy, told Bloomberg that if extreme cold hits, "we could easily" see a record for daily natural gas demand and a spike in cash prices.

Bottom Line

The predicted colder winter weather could potentially impact the energy market, particularly natural gas. The expected increase in demand could lead to a rise in NatGas prices, which have been low for several years. It remains to be seen how these predictions will play out and whether they will indeed lead to a significant shift in the energy market. What are your thoughts on these forecasts and their potential impact on the energy market? Share your thoughts and this article with your friends. Don't forget to sign up for the Daily Briefing, which is available every day at 6pm.