Decided to create this blog to address a perceived need for free (or low-priced) commentary on the weather and climate specifically addressed towards commodity traders. The primary focus of this blog – at least initially – will be on natural gas prices. As any experienced trader knows, the weather can greatly affect the price of natural gas due to its impact on supply and demand.
Cold temperatures in the winter increase the demand for space heating with natural gas in commercial and residential buildings. As a result, natural gas demand usually peaks during the Northern Hemisphere winter (December–February) and is lowest during the “shoulder” months (May–June and September–October). During the warmest summer months (July–August), demand increases again. Due to the shift in population in the United States toward the sun belt, summer demand for natural gas is rising faster than winter demand.
Temperature impacts are measured in terms of ‘heating degree days’ (HDD) during the winter, and ‘cooling degree days'(CDD) during the summer. HDDs are calculated by subtracting the average temperature for a day from 65 degrees. Thus, if the average temperature for a day is 50 degrees, there are 15 HDDs. If the average temperature is above 65 degrees, HDD is zero.
Cooling degree days are also measured by the difference between the average temperature and 65 degrees. Thus, if the average temperature is 80 degrees, there are 15 CDDs. If the average temperature is below 65 degrees, CDD is zero.
Hurricanes can impact both the supply of and demand for natural gas. For example, as hurricanes approach the Gulf of Mexico, offshore natural gas platforms are shut down as workers evacuate, thereby shutting in production. In addition, hurricanes can also cause severe destruction to offshore (and onshore) production facilities. For example, Hurricane Katrina (2005) resulted in massive shut-ins of natural gas production. Hurricane damage can also reduce natural gas demand. The destruction of power lines interrupting electricity produced by natural gas can result in significant reduction in demand for a given area (e.g., Florida).
As one with an extensive background in meteorology and climatology (and an amateur commodities trader!), I decided to create this blog to share my thoughts on the weather and its effects on natural gas supply and demand. At least, initially the posts will be rather sporadic. I am doing this on my free time, and receiving no compensation for doing so… if demand is sufficient, I may expand the scope if I can at least recoup the time investment in doing so! As always, commodities are volatile and subject to speculation, a number of factors (besides the weather) affect their pricing. Moreover, forecasting future weather days and weeks in advance is an inexact science. I expressly disclaim any liability for the accuracy and reliability of the data presented herein. Use of this site is at your own risk!
Now let’s make some shekels! 🙂