Winter Finally taking a Grip on the U.S.
It took a while but snow cover has finally dominated much of the Midwest and Plains States helping to slowly ease drought conditions for wheat farmers from Nebraska to Texas, but also allowing for a very cold late winter weather pattern to help natural gas prices.
The weather pattern has been one with frequent blizzards making national news and due to the incredible blocking over Greenland and the North Pole, we discussed a month ago would eventually happen.
Much of the Midwest and South had a warm winter, in part due to a lack of snow cover that can make a 10-15 degree difference in temps. But late winter is right on track to be some of the coldest in years.
The Natural Gas ETF (UNG) has rallied about 8% over the last week on the realization that this March could be as much as 15-20 degrees or more colder than a year ago. Record snowfall and cold temperatures are blasting the Plains and Midwest and eventually that cold will swing further east, by mid-March. Hence, EIA numbers the next few weeks should be more bullish both last year and possibly the 5 year average. This could continue to help natural gas prices, possibly challenging the $3.70-$3.90 area in the next week or two. While UNG has been volatile and mostly in a bearish trend, per my comments a month ago, the weather forecast for the late winter is not one that is bearish this market.
True we have huge stocks and more than enough supply, but the cold weather at the very least means the lows in natural gas prices are in, barring a cool summer or weak hurricane season, later this year.
Last March (2012 -- above) was the warmest on record for Chicago and dozens of Midwest and Eastern Cities. This March will be much colder and will have friendly implications to the natural gas market and also help us prepare for spring and summer forecasts for important U.S. grain regions.
A Look at Thursday's EIA potential for Natural Gas
SOURCE: EIA/ CWG
Cold, stormy Weather to Continue Well into Mid-March -- late March still in Question.
Warming some 20-40 miles up near the North Pole and Greenland began earlier this month. This has resulted in a negative AO/NAO index that forces cold air south. But the key this winter has really been in the Pacific with a volatile, changeable pattern all season. It is possible that the second half of March could see some changes, as blocking weakens and cooler weather aloft changes near the North Pole. Hence, for us to really get a big rally in natural gas based on weather, we need the second half of March to be cold as well, not just the first half.
Disclosure: I am long UNG.