Wild Winter Burns Traders Betting on Models That Can’t Keep UpBy and
Changes from cold to warm and back lash temperatures, markets
Pacific warmth will push out cold in the western U.S.
There has been talk for some time that inconsistent, volatile and downright confusing weather patterns would loom over the U.S. this winter.
Traders in the natural-gas market can now attest to that. After they drove future contracts to a two-year high last week on expectations of a cold snap setting in across much of the country, the bottom fell out of the market Tuesday when that forecast fizzled. Prices sank as much as 12 percent.
“It was a brutal weekend flip,” said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. “One big problem” with these types of years is “a high volatility level, and patterns struggle to stay consistent.”
Since last fall, the lack of one pattern to dominate them all has been at the heart of many forecasts. The seasonal outlook from the U.S. Climate Prediction Center for December-February called for warmth across the south, some cold in the northern Great Plains and equal chances of a colder, warmer or normal winter for the rest of the country.
Last year, a strong El Nino in the Pacific helped meteorologists forecast the winter of 2015-2016. This year, however, there’s a lack of agreement about what’s happening in the world’s largest ocean. The U.S., using one set of criteria, says a weak La Nina is underway. The Australian Bureau of Meteorology, with its own set of standards, says the Pacific is in a neutral state.
No Clear Signal
El Ninos and La Ninas, marked by warming and cooling of the equatorial Pacific’s surface, dominate weather patterns around the world, so the lack of a clear signal means this winter will be quite volatile, Rogers said.
How volatile? Well, Denver’s temperature is projected to drop to a low of minus 5 Fahrenheit (minus 20 Celsius) on Friday and then climb to 55 degrees on Monday, according to MDA Weather Services in Gaithersburg, Maryland.
Other cities across the central U.S. will see big swings, too. St. Louis will dip to 14 on Sunday and then reach 53 on Tuesday. The low in Dallas could fall to 25 Sunday before soaring to a high of 70 two days later, according to MDA.
What happened over the weekend is that forecast models began to see the Pacific wrestling control over U.S. weather away from the Arctic. Warmth in the western part of the basin is setting up a pattern that will slam the door shut on cold Arctic air sweeping into North America, according to Brad Harvey, lead meteorologist at MDA. The new pattern will flatten out, allowing warmer air to come straight across the ocean.
This more “Pacific-oriented flow is blocking off the Arctic,” Harvey said.
The warmer air will spill across the southern U.S. and drive up the East Coast. MDA said this potentially could push temperatures 2 to 5 degrees above normal in the Mid-Atlantic and Northeast from Jan. 13 to 17.
The result has been the biggest drop for U.S. natural-gas futures in almost three years, dashing the hopes of bulls who drove the market to a two-year high in late December.
“This is knocking the wind out of the sails of the bulls for sure,” said Tom Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami.
Gas for February delivery fell 39.7 cents, or 11 percent on Jan. 3, to settle at $3.327 per million British thermal units on the New York Mercantile Exchange, the lowest since Dec. 20. Futures tumbled for a third consecutive day, posting the largest one-day drop since February 2014. There was no trading Monday because of the New Year holiday.
Rogers cautioned against getting too caught up in all the warmth, though.
“I don’t expect it to persist,” he said. “We could flip back colder for the final third of January.”