The End of El Nino? Watch For a Spike in Natural Gas Stocks

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Includes: AOIX, ATO, AXAS, BR, BRG-OLD, CGC-OLD, COP, DVN, KMI, LINEQ, SJT, SOQ, XLE
by: Will Gabrielski

It’s January and my winter coat is still in the closet. If I lived in Texas, such an event wouldn’t be a big deal. However, in New York City, this is unimaginable. The cause of the warm-spell is a weather phenomenon known as El Nino, and natural gas inventories are building as a result.

But there are signs El Nino is beginning to die down, and this could lead to a sharp correction in inventories and a spike in natural gas related equities.

El Nino works, according to the always reliable Wikipedia.com, by spreading warm water from the west Pacific and Indian Oceans to the east Pacific. This leads to increased rainfall and thunderstorm activity in the western US. Subsequently, other regions of the US experience warmer than seasonal weather, as is the case in New York right now.

But Joe Bastardi of AccuWeather fame, who often sounds as much like a speculative stock trader as he does weather expert, is already seeing signs of water temperature decline in the Pacific. Bastardi likens the current weather on the east coast as similar to the weather of 1964-1965 when warm temperatures prevailed until mid-lat January.

However, the 1964-1965 period endured a turn in weather that led to a sharp decline in temperatures for the metro-area and sharp increases in snow-fall. Bastardi believes today’s weather prognosticators rely too much on weather models and gauges that produce predictable outcomes while ignoring history, which often repeats itself.

If Bastardi’s forecast proves accurate, there are a number of beaten up natural gas stocks that will catch a bid as inventories correct themselves and the slide in commodity prices halts.