The Western Drought And Using Weather To Predict Natural Gas Prices

The historical drought out west has been nothing short of miraculous and unfortunately life-threatening for millions of people. This comes, of course, just after everyone was hit with the COVID pandemic. The west just cannot get a break. 

Some places out west have seen temperature records never observed and I still believe that Climate Change is one key ingredient to what is going on.

However, complex climatic variables relating to global ocean temperatures and Sea Ice are also to blame.

The extreme heat out west has added to the bullish fire in natural gas recently. This is highly unusual.

 Below, I show some weather forecasting techniques I use to out forecast other meteorologists and give natural gas traders an edge.

Source: NOAA.GOV

In the first example, I am looking at historical analogs (going back to the early 1900s) of the worst western droughts ever. I use this in order to 2nd guess standard computer models and to look at analogs. Is there a correlation? The red dot (arrow), represents rainfall since last fall 3 standard deviations below normal (A once in a 1000 year event!!)

(Click on image to enlarge)

All the other red dots in that box represent other similar, but not as severe, western drought. I use these analog years to help make forecasts months in advance.

What I also like to do is look at other teleconnections such as the jet stream pattern over Alaska. This is called the EPO index (short of Eastern Pacific Oscillation Index). When the EPO index goes positive, this means there is more storminess and a trough over the Gulf of Alaska. This can push the extreme heat to the east.

Climate Predict And The EPO Index

(Click on image to enlarge)

Notice how Alaska cools (blue) and the Midwest and parts of the Northeast heat up with a +EPO. This is just one of many teleconnections I look at.

Another important teleconnection is of course El Nino and La Nina. Look how models have a weak La Nina event return by the fall.

So what are the implications for natural gas weather and potentially price action given A)The Western Drought; B) The EPO index that will shift more positive; C) A weak La Nina.?

Japanese MET Center Forecasting A Weak La Nina Mokadi

(Click on image to enlarge)

The quick answer to this is greater than normal mid-late summer cooling demand and the potential for a colder than normal early winter. I must admit that the warming planet and many other intricate climatic phenomena have a huge effect on global climate and things can always change. But the bottom line is that any major sell-off in natural gas prices in the months ahead is unlikely.

Mr. Roemer offers the only commodity newsletter in the world that teaches expert, novice, and stock/eff traders how the power of weather can help you capitalize in trading agricultural and energy ...

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