The Inactive Sun: Preliminary Look At Winter, Crude Oil/Natural Gas

Includes: UNG
by: James Roemer

Global Warming and Climate Change Exist, But Cannot be Blamed for Every Weather Disaster

While I am one of those scientists who believes strongly in global warming, I cannot point to every weather calamity as being 100% directly affected by our warming planet. Take the catastrophic Typhoon that destroyed parts of the Philippines recently. This monster storm is not the only one that hit the Philippines in the last few years. There were several other major hurricanes that hit land-fall prior to the accelerated increase in CO2 over the last 20-30 years.

The Sun's Polarity Has Reversed Early

Our sun has been acting very strangely lately, with the normal 11 year cycle reversal of its polarity, occurring about a year earlier than normal at one of the poles. The sun, is out of sync. Combine that with the current solar maximum (one of the weakest solar maximums ever recorded by man, in which solar storms are few ) and we have the potential for some very unusual winter weather ahead. Not only could a more inactive sun offset some of the hazards of global warming, by potentially cooling the planet, but the sun's magnetic field is important for a ton of technological systems, like power grid distributions and the positioning of satellites.

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A great video to see about the inactive sun, you can view here.

I personally feel we have severe global pollution and environmental concerns, brought on by over population and global warming (just look at what has been happening in China lately as millions of people are walking around with gas masks). However, an inactive sun could at least halt further warming for several years. Nevertheless, this does not mean that we as humans can continue to be complacent when addressing our warming planet. I am happy to see the advent of electric cars, as potentially one solution to the problems.

Natural Gas and the Energy Markets

Two weeks ago we mentioned that heating oil would likely underperform gasoline, as refineries come back on-line and start cranking up heating oil ahead of the winter season. This reality, combined with warm European weather, where imports for heating oil (gasoil) could be curtailed, pressured this spread as we expected, some 12-15 cents ($5,000 a contract). However, with winter approaching and some cold and snows in Europe next week, we advised clients to take profits on this short spread today.

We have been bearish crude oil for weeks due to huge U.S. supplies and no imminent war threats. Prices reached our objective for now.

Heating oil is no longer the weather market it once was, due to a change in the contract to a lower sulfur grade and more homes in the Northeast switching over to natural gas. Nevertheless, there will be plenty of opportunities to trade heating oil as spreads against crude or gasoline, in the weeks ahead.

In natural gas (NYSEARCA:UNG), inventories at 3.83 trillion cubic feet now stand 2% below the record high level in 2012, but are still 1.5% above the 5 year average. The continuation of energy producers using hydraulic fracturing and horizontal drilling techniques, continue to increase supplies making weather developments, only a 'partial piece" to the trading puzzle. However, if I am correct about the winter, then prices will eventually rally above $4.00, though in the interim, lots of volatility will continue. I think that buying some distant call options in natural gas may be a smart play, expecting that by mid-late winter, prices could be 10% or more higher than where they are today. However, it may be wise to wait for any occasional warm spells first, to buy UNG on breaks (if we get them), potentially setting up a early-mid winter rally in this market.

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If you remember, the last legitimate weather related buy recommendation we made in natural gas, was ahead of our forecast for a near record setting cold March and early April, 2013, when prices subsequently rallied 30% in 6 weeks. This could happen again, if not later in December, then in early-mid 2014.

Source of Chart Above -- Ben Smith

U.S. WINTER FORECAST -- Colder Than Normal

There are several variables that make me feel that the winter of 2013-2014 could be one of the top 5 coldest in the last 20-30 years. This is especially true for January and February. These factors are the following:

The inactive sun at a time when we should be seeing a high number of sunspots

The warmest Octobers ever in Alaska. We just had the warmest one ever and most winters are usually cold in the U.S.

The feeble hurricane season we forecasted as early as last June. Inactive hurricane seasons often lead to cold winters, "except" when an El Nino is present, which we do not have

Above normal snow-pack over Eurasia and Siberia

ENSO neutral years (LA NADA).

A positive Atlantic Tripole Index (This has to do with ocean temps in the Atlantic. More on this in a few weeks)

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Chart Above --

El Nino neutral years (LA NADA), when sea surface ocean temperatures along the equator, in the Pacific are normal, tend to suggest the coldest U.S. winters (BLUE). Areas in red, tend to be the warmest. The key will be whether the Arctic Oscillation Index goes negative this winter. In other words, warming over the poles produces a negative AO index and can force cold waves south. Currently stratospheric cooling is going on near the poles, so December weather may see a see-saw in temperatures. However, above normal Eurasian snow cover (below), can often act to counter stratospheric cooling and create a negative AO index. If this happens, "watch out", this winter could be cold and snowy in the Midwest and East, especially later in December into February.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.