Key Drivers
1. Warm weather in the Midwest and Northeast
2. Over supplied natural gas markets both domestically and globally
3. U.S. LNG exports competing for Europe demand with Russian production

Commentary
The Midwest and northeast have seen well above normal temperatures since mid-December. Forecasts show these warm temperatures will continue until at least mid-January, which is keeping wholesale prices very soft. Along with low wholesale natural gas prices is wholesale electric prices. If you haven’t locked into fixed prices for natural gas and electric beyond 2020, we better talk soon.

Historically, when we begin with a warm winter we normally have an extended cold blast in February and March. If that does happen again this year, low wholesale prices will quickly reverse course and rise faster than they normally would because hedge fund technical traders have “shorted” the market by an extreme amount. When prices reverse course those that shorted the market start exiting their positions and push demand and prices up more than normal. It seems there are always consumers who have waited to sign a new supply contract and get caught up in the frenzy.

There are three weather patterns that are key to driving cold or warm weather in the Midwest and Northeast. Whenever one or more of these three things happen we will finally see some cold weather.

ALASKAN RIDGE

Cold air over the North Pole is forced southwards due to a high pressure ridge over Alaska that sometimes last for days or weeks. East of the ridge cold air is often pushed into the Midwest with extreme vigor and ferocity.

GREENLAND RIDGE

The North Atlantic Oscillation (NAO) is a weather phenomenon in the North Atlantic ocean resulting from fluctuations in the difference of atmospheric pressure at sea level (SLP) between Icelandic Low and Azores High. More simply said, it’s basically another high pressure system near Greenland that buckles the jet stream west of it pushing cold air into the Midwest. When the NAO index is low (NAO -), the upper central and northeastern portions of the United States can incur cold outbreaks more than the norm with associated heavy snowstorms.

POLAR VORTEX

The Polar Vortex forms every winter because the of the temperature difference between the Equator and the North Pole. In the polar stratosphere, sunlight basically gets cut off during the late fall and early winter – and that makes it really cold, while the Equator remains quite warm. A jet stream to balance the temperature difference is created around the North Pole. This jet stream is called the Polar Vortex. The Polar Vortex flows in a complete circle around the pole a little more than six miles above the Earth’s surface. On occasion a very strong weather front will crash into the Polar Vortex temporarily causing it to break apart sending extreme cold air into the United States, Siberia and Europe. It eventually heals itself and reshapes into the circle.