Weather and Natural Gas
Student here, I’m looking at trends of futures contracts in the winter months. I am trying to find out what are some of the most “reliable” weather forecasts and how far into the future does it just turn into pure speculation?
Simply put, at what point do we know that we are getting a warmer/ colder winter than expected?
A colder winter suggests heating and consequently power usage might be up. Assuming supply is fixed this increased demand will result in higher power prices and higher spark spread. Alternatively, high power prices in the future could also indicate some expected supply shortage (maybe some important gas/coal retirements?); and if so then the impact on power prices would I expect be pronounced across a longer time period vs. A case where a sudden demand outburst is expected due to a one off weather event
Thanks for the response! Can I pm you with a follow up question?
There are no reliable long-term weather forecasts. There are different models and signals to look at, but you don't know if its going to be cold or warm until it happens. It also depends on where the weather occurs. Relative to normal, a cold East Coast of the US is a more important than cold in the central US, etc. When the extreme temps occur in relation to the season also matters. What is the mix of power generation... could go on. Weather is very important, but it's just one variable to be considered
You have the two main models the GFS and the Euro along with their ensembles. They run several times a day throughout the day(every 6hrs on the big ones). For the most part you’re looking 14 days out beyond that the accuracy isn’t exactly that great.
Probably a long shot but you could see if your school has access to something like WSI or CWG etc. If not some of the weather guys sometimes give discounted/free trial access to students and are usually happy to help with questions if you shoot them an email.
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