July Heat Provides ‘Make-or-Break’ Moment for U.S. Gas Tradersby
Hottest days of the year for Midwest, Northeast come soon
Drought could exacerbate heat in New York, Northeast
A summer heatwave might be just the thing to push U.S. natural gas prices above $3 for the first time in more than a year.
The prospect of a few days at 90 degrees Fahrenheit (32 Celsius) or above in July, with a nice dollop of humidity to top it off, could prolong the biggest rally in gas prices since 2009. Futures reached a 10-month high Tuesday, closing at $2.917 per million British thermal units, on the prospect for sweltering heat in Chicago and other big northern cities. A hot summer will increase fuel consumption to run air conditioners.
“If it gets hot, if it stays hot in July and it goes into August -- and we haven’t seen that in the last couple of years -- then that is certainly a driver,” said Stephen Schork, president of energy consulting company Schork Group Inc. in Villanova, Pennsylvania. “We are getting to the make-or-break point.”
The hottest day of the year for a big part of the Midwest -- from Iowa to Ohio -- usually occurs between July 6 and July 15. For the Northeast, including New York, it generally falls from July 16 to July 25, based on 1981-2010 averages compiled by the U.S. National Centers for Environmental Information in Asheville, North Carolina.
While the Fourth of July holiday will probably start off cool, temperatures will pick up in the course of the week, said Michael Schlacter, a meteorologist with Weather 2000 Inc. in New York.
“You have bearish weather leading into the holiday and then a dramatic flip,” Schlacter said. “I think July 5 and 6, when they come back to work, the next seven days are a big ramp up from slightly warm to very warm.”
There are a number of factors on the weather map that could support heat in the Northwest, while cooling it down in the Midwest, Schlacter said.
One factor to consider is drought in the Northeast. Almost 89 percent of New York is abnormally dry or in drought, with the worst effects around the city and Long Island, according to the U.S. Drought Monitor in Lincoln, Nebraska. Conditions in Massachusetts, including Boston, are even worse and almost all of northern New Jersey is in drought. Any heat that gets going in the Northeast has the potential to be a little more severe and last a little longer as long as the land stays parched.
The problem is the U.S. may never get as hot as it did in 2012, which won’t be enough to push prices as high as many hope, said Teri Viswanath, managing director of natural gas at PIRA Energy Group. With a rising La Nina in the equatorial Pacific, more tropical systems could sweep out of the Atlantic, which would also crimp demand for gas later in the summer, she said.
The high-pressure ridge that has boosted temperatures in the west in the past few years could mean periods of sporadic coolness for the Great Lakes states, according to Schlacter.
“There are a couple of factors that say: the weather is your friend today but not tomorrow,” Viswanath said.