RD Energy Newsletter: January 2019

RD Energy Newsletter: January 2019

January 2019 Energy Update

Key Drivers

  1. November – colder than normal temperatures
  2. December- warmer than normal temperatures
  3. January- updated forecasts to warmer than normal
  4. Storage deficit- 19% lower than year ago and 5 year average levels

 

Commentary

In mid-December both American and European weather models were confident that the colder than normal November was going to be followed by a colder than normal January.  Two weeks later both forecast models declared their expectations of the reforming of the Alaska Ridge in early January is not happening.  The Alaska Ridge is what caused November to be so cold.  As late as December 28 NOAA was still forecasting the first half of January to be normal January temperatures.  January is now expected to be warmer than normal since the cold Canadian air is staying far north of the Midwest and northeast.  The natural gas futures market prices closed in for December business at $4.715/MMBTU.  Prices closed for January business at $3.642/MMBTU.  Prices are now trading for February at $2.95/MMBTU.  Three things we do know for sure: 1. The storage deficit that existed since last winter remains and actually grew during November 2018 due to the cold weather.  The deficit did not shrink in December even though it was warmer than normal.  If the deficit expands by the end of winter that will support prices in the spring.  2. Wholesale prices are now very volatile.  If forecasts change again to colder temperatures, expect short-term prices to quickly rise again.  We also have seen in the past when the numbers of traders are fewer in number like we see during the weeks of Christmas and New Year prices often trend more volatile.  Once everyone returns to the markets next week we may get a better picture of the direction traders will push natural gas prices.  3. If the past two weeks revision temperature forecasts tells us anything, it’s that we can’t predict mother nature and the Alaska and Greenland Ridge formations that is so key to cold weather in the Midwest and northeast in the winter.  As we mentioned in previous issues of our Energy Update even with the short –term price spike in late 2018, prices starting in the spring 2019 and beyond has been only moderately effected and represents good buying opportunities for long-term contracts.

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