Below is a post from Bespoke Weather Services over at bespokeweather.com. We’ve just launched a new commodity trading subscription service for nat gas traders. The product contains both weekly weather and natural gas market fundamental and technical analysis along with daily trade and weather model updates. If you’d like to try out the new Premium service for free, please fill out a contact form or email Chief Meteorologist Jacob Meisel at [email protected]
Recently, American weather model guidance has been abysmal. As seen below, the American model forecasts (blue and green) from two weeks ago for the Madden/Julian Oscillation were not even close to what actually happened (red). This is one of the main indices that we weight in our forecasts for subscribers on a daily basis.
The American guidance two weeks ago was the coolest overall, showing minimal heat moving into the Southeast, and when it shifted to show the warmth other models did, it was part of the reason that natural gas prices spiked. This price spike continued even into early this week on speculation of increased cooling demand. As the week opened, the weather looked to be supportive of natural gas, as models were not yet indicating an end to this Southeast heat wave. But then we began to see indications that model accuracy rates were changing, the MJO was losing its global influence, and a more standard El Nino pattern with cooler temperatures in the East may be getting established. Our Premium subscribers (which you can try out for free by clicking here) were alerted late on Tuesday that weather was significantly less bullish and then warned early on Wednesday that forecasts had turned bearish. International guidance appeared to be the warmest guidance still, but indicators were impressively shifting towards the cooler summer pattern that many had been promised. Prices then sold off Wednesday after initially spiking on speculation, as seen on the 5-minute weekly chart below, giving us a profitable trade.
Why does the heat look to break down? Let’s take a look at the observed MJO again with the newest American GFS forecast. The problem with previous runs of the model was that all the way back in early June it continued to try and break down the MJO into the center circle. Instead, you can see the red line (observed MJO) propagated through a number of phases, not nearing the center circle. But the last two days we have finally seen indications that the MJO is losing influence and crashing into the center. Finally, the GFS American guidance seems to be beating the ECMWF European guidance, which showed the MJO continuing to move around the center circle and keep heat in the Southeast slightly stronger slightly longer.
This is again just one indicator that we use at BWS, and there remains a chance that the GFS American guidance is still wrong, as it has performed abysmally recently. But if it were to be accurate, its output is some of the coolest for the country, and by the end of June the Southeast heat wave would primarily be a thing of the past. That could lead to further natural gas price downside.
Moving forward, there remain a number of conflicting signals as to how exactly this pattern evolves and changes from the current one supportive of widespread eastern warmth. Our Premium subscribers will continue to get detailed daily breakdowns of how the pattern expectations are shifting and how that should impact price action within the natural gas market. This most recent pattern shift allowed us to book a 20% profit as prices spiked off the warmer trends and then reversed downward off the cooler ones. If there is one guarantee moving forward, it is that the weather will always remain active, and opportunities will remain.