In an interview Last Week (Nat Gas Desk, 10/27), Andy Weissman made a passing reference to Weather Insight meteorologist Dave Melita as the guy he trusts most on the whole weather thing. No small claim for Weissman, who puts a lot of emphasis on weather fundamentals for his various economic and commodity price forecasts. You might say that weather inputs put the real doom in Dr. Doom’s forecasts.
That said, we thought we’d ping Melita about this El Niño mystery everybody is up in arms about, and his take on the Winter heating season.
“Many of the past El Niños you might have heard about were not El Niños at all,” Melita says. “There are different ways to define these events. The so-called big event in ’82-83 is actually believed by some scientists to not have been an El Niño at all.”
Call us crazy, but we thought these events followed some sort of rigid definition and that only the effects were up for interpretation. According to Melita, everything is up for some measure of interpretation, whether it’s an El Niño, or La Niña. La what? For all you science Luddites out there, a La Niña is characterized by unusually cold ocean temperatures in the Eastern equatorial Pacific, as compared to El Niño, which is characterized by unusually warm ocean temperatures in the equatorial Pacific. La Niña tends to bring nearly opposite effects of El Niño to the United States — wetter than normal conditions across the Pacific Northwest and dryer and warmer than normal conditions across much of the southern tier. The impacts of El Niño and La Niña at these latitudes are most clearly seen in the winter. In the continental US, during El Niño years, temperatures in the winter are warmer than normal in the north central states, and cooler than normal in the Southeast and the Southwest. During a La Niña year, winter temperatures are warmer than normal in the Southeast and cooler than normal in the Northwest.
Melita says the current ocean warming situation began last fall, after the last ocean cooling (La Niña) situation. Melita did such a great job calling last winter’s weather (unlike the rest of us) because he interpreted the 2005 La Niña situation as the real deal. The government did not. “We didn’t know it would be the warmest winter on record, but we knew it was going to be quite a bit above average,” he says.
Back in March, his Summer forecast actually nailed almost to the day the blistering hot weather patterns we experienced across the Plains and Midwest. Something to do with a strong monsoon someplace. “All of these events often have strong implications for something else, so they have to be monitored carefully. As for the current, so-called El Niño, I don’t see all the necessary elements in play here. Bottom line is that we don’t see any reason for the trade winds to effectively shut down – for any length of time – that would allow temperatures to get beyond slightly above average. And this is necessary for an El Niño. Trade winds have to cease for a moderate-to-strong El Niño to develop.”
So, no El Niño?
“That’s correct. Besides, we think that even if this is actually a really weak El Niño, there are a lot of other processes out there that are more dominant during the cold Winter months that will overwhelm any signal that might be generated by a weak El Niño.”

So we should all be long gas this winter?

“It’s going to be a cold winter this year. I’m very bullish on a 2002-2003 response for this year…and I’m the last meteorologist you’ll meet who uses analogs as a basis for my analysis or forecasts, simply because I feel the atmosphere will never repeat itself. But the comparisons are really striking between 2002 and what we’re seeing here. We had a transition to a very cold October in 2002. And right now we are coming off the coldest October on record. In 2002, a cold October was followed by moderation in November, just as we’re expecting now. Only this year I think it may be a little less warm in November, but a lot wetter. The cold air amassing in Canada will make the last 10 days of this month look like October. My November map says very cold in early November, moderate temps in the middle two weeks, and cold in the last week leading into early December. Bottom line: I’m very bullish a cold Winter. I hate to sound so extreme,
but there it is,” Melita says.

This week WSI Corporation, AccuWeather, Weather Insight, Weather Intel Services,
various government agencies and some professional dart players issued their latest seasonal
outlooks for the upcoming Winter period (the next three months). WSI expects the upcoming
three months to average warmer than normal in all locations except for parts of the northern
Rockies, northern Plains, and extreme northern New England. The WSI November forecast
indicates warmer than-normal temperatures across the entire northern tier of the country, except
Washington and Oregon. WSI says that this will delay early season heating demand for gas and
should extend the injection period for natural gas into storage. Thanks to the extra storage
capacity, this year’s tally should be enormous, if the weather plays nice.

The WSI December forecast indicates colder-than normal temperatures across the
northern and eastern regions of the country, particularly in the north-central region. Cold weather
across all the major heating-demand areas in December should be bullish for gas prices, but
supply concerns are likely to be moderated by high natural gas inventories at the start of the
heating season in mid-November, WSI says. The WSI January forecast indicates warmer-thannormal
temperatures in the Northeast and much warmer-than-normal in the Southeast. Warmer
temperatures in January would tend to reduce the chances for extended cold snaps, which would
provide price volatility in natural gas, WSI says. But the La Niña event could bring occasional
shorter periods of very cold weather. Natural gas demand should be below normal given the
generally warmer profile across most regions.

AccuWeather’s chief long-range forecaster, Joe Bastardi, called for a cooler-than-normal
beginning and end to this Winter, and lots of warmer-than-normal stuff in the middle. Bastardi
said that this year may be even warmer than last year. For November through March,
AccuWeather forecast a warmer Winter than last year on the whole, especially in the second half
of January and February. He went on to say that while the two bookends of the season –
November and March – may be colder than normal, temperatures between December and
February could make the Winter of 2007-2008 as warm as the 1998-1999 and 2001-2002
Winters.

Steve Gregory of WeatherIntel Services says that since September he’s been indicating
an ever-increasing probability of a warm Winter ahead. “We have reached the point where the
overwhelming preponderance of evidence supports a very warm Winter in the key demand
regions of the nation, and the chances of being wrong are as low as I have seen them. I cannot
emphasize this enough – I have never seen so many indicators pointing to a warm Winter. I
literally can find nothing to suggest that this will not occur,” he says. He says he wouldn’t
be surprised if this turned out to be the warmest Winter on record.

More immediately, WeatherInsight’s Dave Melita tells us the second half of November is
forecast to be warmer relative to averages than the first half of the month, “with seasonal
temperatures replacing cold air outbreaks focused into the Great Lakes and Northeast.”
Meanwhile he says above-average warmth will be re-established across the southern US from
California through the Southwest and Texas to the Southeast and mid-Atlantic Coast. Melita isn’t
calling for an extremely warm Winter just yet, rather he qualifies it to “average out at seasonal
or below-average seasonal temperatures during the upcoming Winter, with above-average
warmth confined to the South.”

Melita says that Southwestern and Southeastern droughts are forecast to continue through
Winter 2007-08 due to continued below-average precipitation. “Strong temperature and dew
point discontinuity between southern US above-average warmth and periodic cold air focused
deep into the central US will lead to an above-average number of snow and ice storms, with the
latter icing events focused through the Ohio Valley into the mid-Atlantic region and Northeast,”
he says. This is news to us. As Melita tends to be right more than most folks we hear from, that
last little detail might be worth factoring into your Winter strategy. He also says that “recently
developed La Niña conditions are viewed as having reached their peak, and are expected to
moderate to the point of insignificance to temperature and precipitation across North America
during the upcoming Winter.”

NOAA also forecast recently that above-average temperatures over most of the country
and a continuation of drier-than-average conditions across much of the Southwest and
Southeast is a gimme. The agency’s updated heating degree day forecast for December through
February projected a 3.4 percent warmer Winter than the 30-year normal, but a 0.7 percent
cooler Winter than last year. Additionally, the entire eastern and central slices of the country are
expected to see warmer-than-normal temps with the south-central region recording the warmest
temperatures above normal, NOAA said.

Buy optimised US Natgas Mar-10 call spread on likely very cold winter weather This option trade is highly sensitive to this winter’s weather outcome. Despite the lack of consensus among weather forecasters, two schools of thought have emerged: one expects a strengthening of this autumn’s El-Nino pattern, which would result in above-normal temperatures for the coming winter. The other expects El Nino to recede by mid-Dec, bringing much colder-than-normal weather to the Northeast and the Midwest from mid-Dec to end-Mar. We subscribe to the latter view due to our confidence in meteorologist wizard David Melita of Energy Business Watch who is forecasting the coldest winter in 20 years. Given that weather forecasting is difficult beyond 5-10 days, we prefer long options to a naked long position. An optimized Mar10 call spread would, at the time of writing, generates gross profit of 4 times the premium paid if the first nearby price rallies by 24%. We are forecasting the first nearby natgas price will trade above 6.50 during Q1 10.

Dave Melita, well known long range Meteorologist to the energy sector, has linked up with colleagues from Boulder, Colorado to launch Melita Weather Associates (MWA). This new forecast entity will continue to provide the same highly accurate 30- and 90-day weather forecasts that Dave has been issuing to clients for more than a decade. In addition, the analysis and computer modeling expertise of Meteorologists Pete Stamus and Dr. John Snook allows MWA to introduce one of the most sophisticated weather modeling systems available, with a forecast horizon of 30 days, to the operational forecast and commodity sectors.

The proprietary MWA model is based on the National Center for Atmospheric Research’s (NCAR’s) Community Climate System model (CCSM), which consists of stand alone components covering atmospheric, oceanic, land and sea ice systems. Collaboration of the 3 principles of MWA have taken this research model decades in the making, added proprietary initialization and analysis enhancements, and modified it for daily operational weather forecasting. Besides reducing the typically high degree of model uncertainty in days 6-15 associated with standard Government models, the longer range MWA ensemble modeling system will be a valuable asset to Dave’s already accurate seasonal forecasts. MWA will also provide numerical forecasts of temperature, winds, and other meteorological variables that will be available out to 30 days for any city or point in the world. Free trials are available simply by asking at: david@melitaweather.com <mailto:david@melitaweather.com>