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NOAA: La Nina signals moderate winter

Sam Fletcher
Senior Writer

The US National Oceanic & Atmospheric Administration (NOAA) forecasts this winter will be 2.8% warmer than the 30-year norm for the US in December through February but still 1.3% cooler than last year.

"La Nina is here, with a weak-to-moderate event likely to persist through the winter," said Michael Halpert, head of forecast operations and acting deputy director of NOAA's Climate Prediction Center.

The Societe Generale Group in Paris said, "This means temperatures start off colder in December but warm up towards February. While the winter is likely to be milder than average, NOAA warned that we should expect bouts of winter weather which should add to volatility."

Meanwhile, Halpert said Oct. 9, "The big concern this winter may be the persistence of drought across large parts of the already parched South. And while December through February is likely to be another milder-than-average winter for much of the country, people should still expect some bouts of winter weather."

Above-average temperatures are projected for the Northeast and the Mid-Atlantic states as a result of a long-term warming trend. "Snowfall for the region will depend on other climate factors, which are difficult to anticipate more than 1-2 weeks in advance," NOAA officials said.

The drought-plagued Southeast is likely to remain drier than average, with above-average temperatures. Temperatures and precipitation should be above average in the Great Lakes and Tennessee Valley. The south-central plains also are expected to be warmer and drier than normal, with above-average temperatures in the central plains. However, NOAA officials said, "The northern plains has equal chances of above, near, or below-average temperature and precipitation. In the Northwest, there are equal chances for above, near, or below-average temperatures. Precipitation should be above average in much of the region due to La Nina."

Drought and above-average temperatures are expected to persist in the Southwest due to La Nina, officials said. Northern Alaska is expected to be milder than average, while the rest of Alaska has equal chances for either above or below-average temperatures and precipitation. In Hawaii, temperatures and precipitation are expected to be above average.

NOAA and other scientists base this forecast on studies of long-term climate trends and a variety of forecast tools from statistical techniques to extremely complex dynamic ocean-atmosphere coupled models and composites. The outlook will be updated Nov. 15.

In the interim, Societe Generale analysts report indications of price strength for the US gas market. "Canadian imports are down at 8.8 bcfd, which is below the 30-day average of 9.1 bcfd. LNG is at 700-800 MMcfd with sendouts over the past weekend dropping to 600 MMcfd. Strong global prices provide an incentive to ship elsewhere from the US," they reported Oct. 15. "US production was also off 3 bcf for the [latest] week, attributed to reduced supply moving out of western areas," said Societe Generale. EIA reported the injection of 73 bcf of gas into US underground storage in the week ended Oct. 5. That put gas in US storage at 3.336 tcf, 44 bcf less than a year ago and 237 bcf above the 5-year average.

As for market volatility, Societe Generale said, "Prices rose last week, but volatility dropped. Currently, volatility is 56.55%, about 2% higher than the 1-year forecast. In late September we witnessed annualized volatility levels of 71.25%, and we are experiencing considerably lower than levels witnessed in mid-August (92%)."

Record oil price
Robert S. Morris, Banc of America Securities LLC, New York, said, "Apart from some further intervention by Mother Nature, we believe it is more likely that there is further downside rather than upside to near-term natural gas prices. Oil prices, on the other hand, seem to have gained momentum leading up to winter and continue to underpin the strength in energy shares, and we believe that the E&P sector will continue to move in whatever direction commodity prices, particularly oil, move near term."

The front-month crude contract climbed above $84/bbl for the first time ever in intraday trading Oct. 12 on the New York Mercantile Exchange amid escalation of political tension in the Middle East. In early-morning electronic trading Oct. 15, crude jumped above $85/bbl after the Organization of Petroleum Exporting Countries raised its forecast for oil demand in the fourth quarter by 100,000 b/d. Concerns about a supply interruption also boosted prices due to tensions between Turkey and Iraq.

"Global oil demand has held up very well in the face of record oil prices in the second half of 2007, and we believe that concerns of price-driven demand destruction are overblown," said analysts with Raymond James & Associates Inc. in Houston.

Market Journal will appear next on Nov. 5.

(Online Oct 15, 2007; author's e-mail: samf@ogjonline.com)


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