UNG: Breaking Out

Despite the bearish fundamentals for Natural gas that I disussed in my post yesterday, UNG is on the verge of breaking strong technical resistance, up 7%  on very high volume. It will record one of its highest-ever one day volumes today and the highest since June 11.

While I am not a chartist  by nature, this shows the signs of a short-covering rally and I would not be surprised to see UNG run another 10-15%. Looking at some of the options activity, $15 seems like a good bet. Fundamentally, I still feel that $4/MMBTU gas is overvalued and, should the tropics remain quiet, it may even provide a good short-term short opportunity once the short-covering runs out of gas. However, I plan to just sit on my long position and enjoy my gains. Any trades I make today will be in individual stocks, as there are lots of good opportunities there.

In the energy sector, I particularly like APC above $50 and CHK on the breakout above $22. I am long APC from $49.75.

The tropics remain relatively quiet today. The GFS computer model continues to show signs of developing a tropical wave off of the African Coastline over the next 2 days. We will have a long time to track this one before it approaches any land. The rest of the tropical Atlantic is under unfavorable conditions of high shear and dry air.

Note: Major Karma Points to the first person to correctly identify the hurricane shown at the top.  This is going to be a common theme of posts for the foreseeable future. A small hurricane warning flag will be awarded to the individual with the most points at the conclusion of the hurricane season, provided that they have at least 12.

TraderCaddy jumps into the race with two quick points…

1. Wabisabi-8

2. DPeezy-6

3. Yogi and Boo Boo-2

4. TraderCaddy-2

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The term the “Dog Days of Summer” first arose in Greek and Roman times when it was known as the “caniculares dies.” It marked the period between late July and late August when Sirius, the Dog Star, rose concurrently with the sun. It has nothing to do with “sweating like a dog” which is fortunate because if used in this context, it would be terribly inappropriate in the summer of ’09. After last week’s near nation-wide warm-up and freak heat-wave in the Pacific Northwest, temperatures will return to the same boring and near-to-below-normal weather we have come to enjoy for most of the summer.

As such, cooling demand will likely fall as well. After last week’s warm-up, the Northeast and Mid-Atlantic will cool between 10 and 30 CDDs over the Sunday-Friday period to near average or slightly below average for this time of year. The Pacific Northwest, after last week’s record-setting heatwave, will cool to near, or slightly above average. Hitting the jackpot in the cooling lottery will be the Valley of California, which will see temperature drops of nearly 40 CDDs, taking daily highs from the mid 90s to the mid 80s.

The only areas experiencing a warming trend will be the Southeast which will rebound by up to 20 CDDs to near normal. Areas near the Great Divide in the Mountain West will see the greatest rally, of up to 30 CDDs.

Overall, this week will be marked by a return to equilibrium: last week’s warm areas, cooling; last week’s cool areas, warming.

Total forecasted CDDs for the upcoming week are shown below in Figure 1 while the week-over-week change is shown below in Figure 2.

Figure 1: Projected Cooling Degree Days (CDDs) for the upcoming week.

Figure 2: Week-over-week change in Cooling Degree Days

With 6428 population-weighted CDDs, this week looks to be the third hottest (or, third coolest) out of the six weeks of summer we have experienced so far. Last week was the hottest overall with 7102 CDDs while the week of June 26^th with 5545 CDDs was the coolest. Overall, population-weighted CDDs will fall 867, or 11.9% from last week. Based on this data, I project a natural gas injection of +61 BCF for the EIA Supply Report to be issued on August 13. This compares to a five-year average of +56 BCF and last year’s injection of +50 BCF. Relevant numerical data is shown below in Table 1.

Table 1: Numerical Cooling Degree Data

Region	This Week’s Population-Weighted Cooling Degree Forecast	Numerical Change From Last Week (Percent Change)	Projected Natural Gas Injection (Inventory Report: August 13)
East	3442	-767 (-18.2%)	+54 BCF
Producing	1658	+69 (+4.3%)	+7 BCF
West	1327	-168 (-11.3%)	-1 BCF
U.S. Total	6428	-867 (-11.9%)	+60 BCF

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Based on last week’s warm weather, I project that this week’s injection will be +57 BCF. This compares to a five-year average of +42 BCF and last year’s injection of +56 BCF.

Projecting such above-average injections for the next two weeks gives me no desire to increase my natural gas stake. Ordinarily, the below average temperatures would make me want to get short gas, while the falling rig count and and upcoming hurricane season would make me want to get long(er). Ergo, I do nothing.

The Tropics: Welcome to August

Bienvenidos. Now that August has arrived, we can expect tropical activity to pick up precipitously. Figure 2 below shows that tropical cyclone frequency ramps up beginning the first week of August.

Figure 3: Tropical Cyclone Frequency showing a rapid increase in activity beginning in August.

The last nine years in a row have seen a storm form during the first half of August. In six out of those nine years a storm formed during the first week of August. Climatologically favored areas of development for early August include the Gulf of Mexico,  the Western Caribbean, the western half of the Tropical Atlantic.

Broadly speaking, the level of tropical activity for the next month will depend on the three factors discussed below.

El Nino: This is the guy that is sticking the control rods into the figurative tropical nuclear breeder reactor. El Nino is the warming of the eastern Equatorial Pacific, resulting in increased wind-shear across the Atlantic. Right now, temperatures are averaging roughly 1.4 F above normal in the Eastern Pacific, a mild El Nino event on the cusp of becoming a moderate one should the warming reach 1.8 F. There are no signs of this warming trend abating. El Nino will likely suppress tropical activity and I am confident that we will see a below-average number of storms during the rest of the season. But let’s not go overboard. I have seen forecasts from semi-reputable sources now calling for under 5 storms. This is rediculous. During the last strong El Nino, 1997, we still saw 8 named storms and that was a far stronger El Nino. I still expect we will see 10 named storms, at least.

The late start to the season can at least partly be attributed to El Nino since wind shear has been very high thus far, particularly in the Caribbean.  Since the western Caribbean is climatologically a hot spot for development in July, this has put the kaibash on any early-season development. Several strong waves entering the Caribbean last month would likely have otherwise developed had they not been mutilated by the wind shear.

Ocean Temperatures: While ocean temperatures started out the summer substantially below levels observed in recent years (though still above average), they have rebounded in the last month to average about 1.0F above long-term averages. Ironically, this is due to weakness in the Bermuda High, which has allowed the Jet Stream to dive southward in the East to give us all of the cold weather we have been experiencing. However, this same weakness has slackened the prevailing winds which normally mix up the upper half of the ocean bringing cooler water to the surface. This has therefore allowed to temperatures to warm a more rapid than normal rate. These temperatures allow for more intensification should a storm develop.

Saharan Dust: Sand storms over the Sahara Desert throw up dust that is dumped over the eastern Atlantic by the prevailing winds. Accompanying the dust is very dry air that squeezes moisture from the atmosphere, squelching development. In a tag team effort with the wind-shear in the Caribbean, bountiful quantities of Saharan dust off of the African coast have taken care of several promising waves moving off of Africa.

However, sand storms are at their peak in May, June, and July and thus we can expect levels of dust to gradually decline over the next few weeks

The Tropics Today

Currently, there are no imminent areas of development. Most of the Atlantic is dominated by a pair of upper level lows that is precluding any tropical development. A strong wave has recently moved off the western coast that appears to have some spin associated with it. This wave is shown below in Figure 4.

Figure 4: The Tropical Atlantic and African Wave

It will need to be watched to see if it can survive the dry air and Saharan dust to its north. The GFS computer model is showing some signs of developing the system in the next 48-72 hours. Climatologically, systems this far east this early in the season tend to recurve away from land. Regardless, we will have a very long time to watch it. Overall, I give a 25% of seeing development in the next seven days.

In other tropical news, Tropical Storm Lana is currently passing roughly 500 miles south of Hawaii and weakening. Beyond enhancing the surf and increasing the chance of afternoon showers and thunderstorms, Lana will have no direct impact on the island chain.

Should you feel the season is doomed, see my post on investing on a lack of hurricanes. Otherwise, hang in there, August is here.

Note: Major Karma Points to the first person to correctly identify the hurricane shown at the top.  This is going to be a common theme of posts for the foreseeable future. A small hurricane warning flag will be awarded to the individual with the most points at the conclusion of the hurricane season, provided that they have at least 12.

Double points last post. Wabisabi picks one up for getting Jeanne, while TraderCaddy gets one for mentioning twin-sister Frances.

1. Wabisabi-8

2. DPeezy-6

3. Yogi and Boo Boo-2

4. TraderCaddy-1

Comments »

The EIA released its weekly natural gas storage report yesterday for the week ending July 24 and showed that natural gas supplies increased +71 BCF to 3023 BCF. I had discussed in my posts last week the potential for a very large injection and this was indeed verified. Storage information is shown below in Table 1.

Table 1: Natural Gas Storage For the Week Ending July 24, 2009

	Stocks in Billion Cubic Feet (BCF)
	7/17/09	7/24/09	Change
East	1467	1523	+56
West	442	441	-1
Producing	1043	1059	+16
United States	2952	3023	+71

At first glance, this report was decidely bearish. Not only  was the injection 39% above the +51 BCF injection that is normal for this time of year, but it is also +6 BCF higher than last year’s injection, the first time this has occurred since the week of June 13. Additionally, this marks the first time that there has been 3000 BCF+ in storage in the month of July since records have been kept beginning in 1994. In fact, the next earliest date that the 3000 BCF threshold  was crossed was August 31st, 2007, FOUR weeks away. This practically guarantees that we will eclipse the storage record of 3565 BCF also set in 2007. We are currently 18.8% above the five year average supply and 23.3% above supplies at this time last year, as shown below in Figure 1.

Figure 1: Natural Gas Storage. The red line corresponds to actual inventories while the gray region shows the five year range

The massive injection was due to a large area of cold air, covering the eastern half of the country. Last week alone, there were over 1000 record lows set in the Ohio valley and Northeast. As a result, we were -221 cooling degree days colder than this time last year, the greatest year-over-year departure this summer. This reduced last week’s cooling demand, which is the primary source of marginal NG consumption during the summer months. Additionally, the majority of the below average weather was in areas of high-population density and energy consumption, which further added to loss of cooling demand. The extent of the below-average weather is shown below in Figure 3.

Figure 2: Departure from average temperatures across the United States, showing a large pool of below normal readings in the midwest and east

This all being said, natural gas rallied 6% yesterday. There are two primary reasons for this.

First, despite the high number, +71 BCF was on the low end of the analyst injection projection spread, ranging from +70 BF to +78 BCF. My temperature-based model had predicted an injection of +75 BCF.

Second, this was an isolated event, due to record breaking cold weather. As I mentioned in my post last week, this current week has been substantially warmer in both the Pacific Northwest and the Northeast compared to last week, which should lead to a much more modest injection in next week’s supply report. My model currently projects +59 BCF. While both of these regions will cool down next week, a warming trend in the Producing Region may offset this and lead to another sub-60 injection the following week.

The 2009 injection season (beginning Apr 1) also continues to improve versus the 2008 season. While the 2009 season remains above the 2008 season since April 1, as shown in Figure 3 below, it has been outperforming over the past 6 weeks despite cooler weather year-over year. This data is shown in Figure 4.

Figure 3: Total Natural Gas Injections for 2009 vs 2008.

Figure 4: Difference between Total Natural Gas Injections for 2009 vs 2008

This indicates that is industrial demand is returning, the falling rig count is curtailing production, or producers continue to cut back on tapping producing wells. In 2008, the next five injections were +57 BCF, +50 BCF, +88 BCF, +102 BCF, and +90 BCF. We are certain to outperform over this period.

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Outlook

I am neutral-to-bearish on the short-term prospects of natural gas, but bullish over the longer term through 1Q 2010. Based on the current supply and demand situation, I believe that the  fundamentals support the current price of NG at ~$3.50, but not one substantially lower. While I cautiously believe that this week’s supply report will mark the bottom of the summer’s temperature-driven NG glut, I want to see more confirmation of a bottom. As I currently hold a considerable position in the natural gas ETF, UNG, with an average price of about $13.40. I will not be adding to my position due to the excessive supplies, but will watch the storage reports, forecasts, and the tropics carefully to determine an appropriate time to add to my position. For those looking to start a non-spec, longer term position, I encourage you to let NG fall back to around $3.50. There are few fundamental reasons to go long at the moment.

I will have a look at the Tropics Sunday Afternoon to discuss the Atlantic and the possibility of TS Lana, or its remnants, heading towards Hawaii…

Note: Major Karma Points to the first person to correctly identify the hurricane shown at the top.  This is going to be a common theme of posts for the foreseeable future. A small hurricane warning flag will be awarded to the individual with the most points at the conclusion of the hurricane season, provided that they have at least 12.

Wabisabi and DPeezy duking it out…

1. Wabisabi-7

2. DPeezy-6

3. Yogi and Boo Boo-2

Comments »

The Pacific Northwest continues to bake under a remarkable heatwave that is shattering daily record temperatures and threatening all-time record highs. Portland, Oregon reached 106 degrees yesterday, shattering the previous record of 101. The city has a chance to break the all-time record of 107 (the hottest its ever gotten in Portland) today or tomorrow. Other major cities topping 100 in the area include Seattle, Wa (100), Salem, Or (107), and Eugene, Or (106). Several more of these records are shown in Table 1 below.

Table 1: Record Temperatures Yesterday in the Pacific Northwest

Location	New Record	Old Record	All-Time	Forecast Today
Vancouver	106*	100 (1998)	105	106
Portland Airport	106	101 (1998)	107	106
Portland Downtown	105	100 (1998)	106	105
Troutdale	105	101 (1998)	108	105
Salem	107	99  (2003)	108	106
Eugene	106	100 (1998)	108	104
Hillsboro	105	96  (1985)	108	103
McMinnville	106	104 (1998)	110	106
Astoria	92	82  (2003)	101	85

Not only are the daily high temperatures bringing dangerous heat, but nighttime lows are falling only into the mid-70s, offering very little relief from the heat. Those living in the Southeast or Desert Southwest may scoff at such temperatures, but this is a region that is very ill-prepared to handle such heat. The average high and low in Portland, Or for today are 81 and 56, respectively. As a result, many areas do not have adequate air-conditioning and ventilation.

While the heat-wave will gradually diminish starting Friday, temperatures will remain above average for the foreseeable future.

Why the Heat?

The Pacific Northwest is one of the most interesting places in the nation to study meteorology. The combination of the Pacific Ocean, the Cascades, the Columbia Gorge, and the dry Interior create a unique geography that strongly influences the weather, both in the summer and the winter.

When the wind is blowing onshore, the temperature is cool during the summer and mild during the winter due to the moderating influence of the Pacific Ocean. This is usually due to the counter-clockwise flow around an area of low pressure centered west of the area. During the summer, the flow is usually weakly onshore which keeps temperatures comparatively cool. 

However, should the wind reverse and flow offshore from the east, the area sees extreme temperatures, hot during the summer and cold during the winter. This is due to the flow off the high deserts of the Interior. Such a situation is usually caused by the clockwise flow around an area of low pressure east of the region.

However, it is more complicated than it sounds. The tall Cascade Mountains act as a buffer, shielding the Pacifc Northwest coastal Plain from rapid temperature swings. Were they absent, temperatures could swing wildly daily due to wind direction changes. However, the Columbia River, which cuts through the Cascades creating deep gorge, can act as a floodgate allowing this air to flow west of the Cascades faster than it would if it went over the mountains. For this reason, Portland, which is located very close to the Columbia River Gorge often sees some of the widest range of temperatures in the entire coastal plain. Because of this narrow channel, it takes time to erode the hot/cold air since an onshore flow cannot immediately displace the continental air if it has nowhere to go. The entire situation is shown below in Figure 1. Apologies for the Paintshop doodles. I won’t be able to re-download Photoshop until I arrive at school at Georgetown next week. 

Figure 1: The Two Pacific Northwest Weather Patterns. An Onshore flow brings mild air in of the Pacific. An offshore flow  brings continental air through the Columbia River Gorge onto the coastal plain.

This is precisely what is happening this week. Not only is the onshore flow very weak, but a strong area of high pressure is centered over the upper Mountain West. The clockwise flow around the high generates an offshore flow bringing very hot air in off the deserts. This situation is shown below in Figure 2, courtesy of Accuweather, which does have Photoshop.

Figure 2: The clockwise flow around strong high pressure over Montana brings warm air westward

If any readers live in the area, I would be interested  in hearing your perspective.

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Investing Opportunities

While this is a very localized event, there are still some good investment opportunities. This region has been above average for most of the summer so this is merely the climax of warm weather. The heat should result in a good drawdown of natural gas in the West Region, as the Pacific Northwest is one of the most populous areas of that region. I do not advise going long NG right now because, as I mentioned over the weekend, cool weather last week should result in an above average injection in tomorrow’s supply report.

However, due to the cooling demand, Power Companies operating in the region should do well. The largest publicly traded company in the region is Portland General Electric (POR) that delivers power to half the inhabitants of Oregon, including Portland, as well as southern Washingon. It operates 13 powerplants generating 2398 MWe servicing approximately 900,000 customers. It uses hydroelectric, coal, and natural gas to generate electricity. I have no position in the company. Its chart is shown below.

 

PacifiCorp supplies power to the rest of the Pacific Northwest, including Northern California. PacificCorp is a subsidiary of MidAmerican Energy Holdings, which is in turn a subsidiary of Berkshire Hathway (BRKA/B). It provides power to approximately 1.4 Million customers. It is very invested in Nuclear Energy, Hydroelectric power, and other forms of renewable energy. The rather pricey chart of mother company Berkshire Hathaway is shown below.

 

Lastly, Home Depot (HD) has reported that they have repeatedly run out of portable air conditioning units across the entire Pacific Northwest region despite frequent re-stockings and have begun to see shortages of ordinary fans. Home Depot is also a good hurricane play so I may look to add a small position at some point. Its chart is shown below.

 

Note: Major Karma Points to the first person to correctly identify the hurricane shown at the top.  This is going to be a common theme of posts for the foreseeable future. A small hurricane warning flag will be awarded to the individual with the most points at the conclusion of the hurricane season, provided that they have at least 12.

Different sort of storm today, but it relates to the post.

All knotted at 6…

1. Wabisabi-6

2. DPeezy-6

3. Yogi and Boo Boo-2

Comments »

As potential hurricane plays in the oil and gas sector have been readily discussed, I thought it appropriate to take a look at the other side of the coin. What sectors should be considered should the Weather Gods show mercy on the Gulf Coast this upcoming season tropically-speaking? Additionally, merely discussing the lack of storms may get Mother Nature to show her passive-aggressive tendencies and get things going, just to be contrary. Thus, in an effort to jinx the hurricane season into activity, here is a list and discussion of sectors to investigate should the coast not get smited…or smitten.

1. Insurers

Insurers are perhaps the most obvious play here. If there are no hurricanes, insurers continue to collect premiums without having to pay out damages. No news is good news when it comes to insurance. I have listed three different insurance plays, from large cap to small cap.

i. Allstate Insurance Corp. (ALL)

Allstate is the largest publicly-traded personnel insurer in the United States. Despite its size, it still has considerable exposure to the Gulf Coast, putting its profits at risk in the event of a strong landfalling hurricane. During the 2004 hurricane season in which Charley, Ivan, and Jeanne all made landfall as Major Hurricanes, Allstate reported losses from these storms of over $1.11 Billion. In 2005, losses from Dennis, Katrina, and Rita exceeded $3.0 Billion.

ii. Renaissance Re-insurance (RNR)

Formed in 1993 as a result of Hurricane Andrew, Bermuda-based Rennaissance provides property-catastrophe re-insurance and primary insurance. Along with subsidiaries Timicuan Reinsurance II and Glencoe Insurance, Renaissance operates in several hurricane-prone regions including Florida, Texas, North Carolina, and the U.S. Virgin Islands.

I like the technical breakout above $50.

iii. Universal Insurance Holdings (UVE)

Hat-tip to Hooper for this one. Universal Insurance Holdings is a Ft. Lauderdale-based company providing home-owners insurance against hurricane damage to customers in North Carolina, Georgia, and Florida. It boasts 360,000 clients in the state of Florida alone. While it trades on thin volume with a market cap of just $190 Million, UVE is probably the purest anti-hurricane play of the three. Definitely a speculative position.

2. Irrigators

While the cons of hurricanes are well-documented, hurricanes due have their benefits. Much of the southeast and south-central United States derives a large portion of their summer rainfall from tropical cyclones and their remnant moisture. This is particularly true for areas that don’t see afternoon convective thunderstorms, such as South Texas, the southern Great Plains, and the Appalachians.

The absence of hurricanes and tropical moisture can quickly result in drought conditions during the summer months. In 2009, Texas and Louisiana are already experiencing moderate to exceptional drought conditions. Coupled with the rapid rate of evapotranspiration during the hot summer months, this drought could easily spread to encompass much of the Southeast should no tropical cyclones impact the region. The upper midwest and west coast are also experiencing short-term moderate droughts. The current drought status is shown below in Figure 1.

Figure 1: Current drought status shwoing exceptional drought in south Texas and moderate drought in other areas of the Southeast.

Companies that may benefit from these droughts are irrigators that sell agricultural machinery to efficiently water cropland with minimal waste. Two of the most prominent companies in this sector are Lindsay Corp (LNN) and Valmont Industries (VMI)

i. Lindsay Corp (LNN)

Lindsay Corp is a designer and manufacturer of self-propelled center pivot and lateral move irrigation systems. These are relatively easy to set up and move quickly as conditions warrant. Thus, they make a great drought-play. I will likely initiate a starter position in LNN at some point this week, on anticipation of a break above $40, at which point I will add to the position.

ii. Valmont Industries (VMI)

Valmont is a manufacturer of fabricated metal products. Its mechanized irrigation equipment delivers water, chemical fertilizers and pesticides to agricultural crops. Because of its large construction business, Valmont is a more diversified play, with significant exposure to the broad construction industry in addition to irrigation.  Valmont reported 2Q earnings of $1.69/share last week, up from $1.41/share from a year ago. Since the announcement, the stock has fallen from over $81 to $71.

3. Misc. Oil and Gas

While oil and gas plays are usually considered bullish hurricane plays as the underlying commodity prices often see a jump ahead of the storm. However, certain companies often have interests in the Gulf that are adversely affected. I provide just one here, Anadarko (APC).

i. Anadarko Petroleum Corp. (APC)

Anadarko operates the Indepedance Hub, an oil and gas producing and holding facility located in the deep-waters of the Gulf of Mexico. It is located roughly 100 miles south of Plaquemines Parish in Louisiana in a very vulnerable location. The facility produces and/or handles 7.4 BCF/day of natural gas, more 10% of the nation’s gas demand and is one of the primary income generators for Anadarko. While shut-ins may reduce the NG supply and increase prices, it is bad in the long term for a company like APC that holds interests in the oil and gas infrastructure in the region. While the platform has been relatively lucky thus far in avoiding hurricane damage, it did lose 5 Million Barrels of oil last summer due to Ike and Gustav.

While this is a play on fundamentals, a breakout above $52 would be attractive.

Note: Major Karma Points to the first person to correctly identify the hurricane shown at the top.  This is going to be a common theme of posts for the foreseeable future. A small hurricane warning flag will be awarded to the individual with the most points at the conclusion of the hurricane season, provided that they have at least 12.

Wabisabi retakes the lead after getting the last storm in under 10 minutes…

1. Wabisabi-6

2. DPeezy-5

3. Yogi and Boo Boo-2

Comments »

After being locked in the same cool, damp pattern nearly the entire summer, the East Coast is finally set to experience a long-term warm-up which may benefit those banking on high energy demand.

In the upcoming 6 day period (Sunday-Friday), nearly everywhere east of the Mississippi will see increases of at least 20 Cooling Degree Days from last week, while some areas of the Northeast and Mid Atlantic will see increases of 40 Cooling Degree Days. All of these areas will see highs in the upper 80s to lower 90s, the hottest period of the summer. Additionally, the Pacific Northwest will be experiencing a mini heat wave in the early part of the week, with highs in Portland, Oregon and Seattle, Washington approaching 100 degrees, a rarity in that part of the nation. The only area that can expect to see cooler temperatures will be the Mountain West and desert Southwest. Forecasted Cooling Degree Days (CDDs) are shown below in Figure 1.

Figure 1: Forecast Cooling Demand for the upcoming week (6 day period)

The change in CDDs from last week to this week is shown below in Figure 2.

Figure 2: Change in Cooling Demand from last week to this week.

The important thing to note, at least from an energy demand perspective, is that the increase in temperatures is going to occur in an area of high population density. A map of population density is shown below in Figure 3. One can see that the areas that will experience the greatest week-over-week warmup are those with high population densities, while the areas that are to cool down have some of the lowest densities.

Figure 3: Population Density of the United States. Areas that are warming this week are areas of highest population density

With 199,688  total Cooling Degree Days, this upcoming week is not forecasted to be the hottest of the summer (214,970, Week of July 12). However, when population density is taken into account, the 7296 CCDs forecasted for the upcoming week is a 28.4% increase over last week’s total, and 10.4% increase over the previous hottest week (6605, Week of July 12). Again, this is due to the warm-up in the populous East. The East region is expected to see CCDs increase by 52% compared to last week! Based on these forecasts, an injection of +56 BCF is anticipated for this upcoming week, which would be the least of the summer thus far. This data is shown below in Table 1.

Table 1: Numerical Cooling Degree Day Data

Region	This Week’s Population-Weighted Cooling Degree Forecast	Numerical Change From Last Week (Percent Change)	Projected Natural Gas Injection (Inventory Report: August 7)
East	4210	+1439 (+51.9%)	+50
Producing	1590	+202 (+14.6%)	+10
West	1525	-29 (-1.9%)	-4
U.S. Total	7296	+1612 (+28.4%)	+56

However, this warm-up must also be put into context. Last week was exceptionally cool. I project a natural gas injection of +75 BCF this upcoming week, which is far above the normal of +48  BCF for this time of year. Thus, broadly speaking, this week’s warmup is merely a return to a nationwide average. However, a few things to note: First, because this is the first time it has been this warm in the East, it may feel warmer than it really is.  Second, not only will the east be hot, it will also be humid. De-humidifying the air takes additional energy, something that my injection model does not take into account. Thus, the +56 BCF projection may ultimately be too high.

In conclusion, while the eastern half of the nation will experience a marked warmup this week that should result in a bullish injection figure the following week, last week’s cool temperatures make me cautious going long natural gas right now, as I mentioned in my post last Friday.

Why has the East Been so Cool?

Indeed, the summer has been remarkably cool thus far east of the Appalachians. So far in the month of July, over 3000 record low temperature records have been set, nearly all east of the Mississippi River. In Cincinnati, Ohio the average high temperature is around 85. Thus far in July, the high has not exceeded that mark once. None of the major east coast cities have exceeded 90 degrees, while Chicago has done so only once.

So why has this been occurring? For most of the summer, the Bermuda High, a semi-permanent area of high pressure in the Atlantic, has been weaker than normal. This has allowed the Jet Stream to plunge south into the Northeast, dragging down cool air and storminess. At the same time, a reactionary ridge has built in the Central and West, keeping these areas hot and dry. This situation is shown in Figure 4 below.

Weather Pattern So Far This Summer

Figure 4: Predominant weather pattern thus far this summer

This week however, that Bermuda High is forecast to strengthen. This will push the Jet Stream back north into Canada. With the clockwise flow around high pressure, warm, muggy air will be pulled northward from the Gulf of Mexico into the Northeast and Mid-Atlantic. Not only will this bring hot and humid air to the region, it will also bring the chance of scattered severe afternoon thunderstorms pretty much every day this week. This situation is shown below in Figure 5.

Pattern Change This Week

Figure 5: Predicted change in the weather pattern for the upcoming week

In conclusion, while this is merely a return to average, it will feel very hot and miserable. Enjoy!

As for the tropics, they are seriously quiet. Its not even worth putting a map up. There’s just nothing out there.  Stay tuned to see when this changes.

Note: Major Karma Points to the first person to correctly identify the hurricane shown at the top.  This is going to be a common theme of posts for the foreseeable future. A small hurricane warning flag will be awarded to the individual with the most points at the conclusion of the hurricane season, provided that they have at least 12.

1. Wabisabi-5

2. DPeezy-5

3. Yogi and Boo Boo-2

Comments »