Winter Storm Warning Amplifies Cold Weather Forecast
Traders knew the cold weather was coming with NatGasWeather forecasting high demand Sunday through Wednesday, but since that forecast was issued on January 15, the National Weather Service has issued a winter storm warning, calling for hazardous wind chills and snow threats stretching from the Midwest to the East Coast.
While not quite a “polar vortex”, the magnitude of the “cold shot” was enough to chase a few of the weaker shorts out of the market and perhaps attract a few speculators.
Arctic Intrusion Expected Late January Could Boost Withdrawals
Professional traders are seldom caught off-guard by a current event like this week’s cold. They tend to react to the 10-15 day forecast. And in doing so, they shifted to the colder forecast for late January with arctic air expected to sweep much of the eastern U.S., lifting heating demand forecasts.
Forecast models for January 26 to February 1 are now calling for an “Arctic Intrusion” that is expected to strengthen heating demand and potentially boost withdrawals.
High Storage Inventories Limit Upside Despite Demand Surge
Unfortunately for longer-term bulls, storage inventories are significantly above the five-year average, offering a cushion against demand spikes and limiting upside price moves. Therefore, this latest forecast may produce volatile price action, yet limited price gains. Nonetheless, the rally could extend further if the 10-15 day forecasts continue to point toward new cold weather patterns after February 1.
While these quick blasts of cold are more likely to produce limited short-covering rallies, new forecasts calling for lingering cold or even polar vortex predictions will have the power to create rallies of longer duration than a few days.
