This week is a cold one in the Midwest and East. Here in New York City the high is below 20 degrees and we’ll see single digits at night. Luckily I’m headed South for the inauguration tomorrow, but temperatures will still be below freezing in DC. Can this cold snap raise oil and natural gas prices from their current lows?It’s a difficult question, but a fun one to explore. The leading source of heating in the US is natural gas, so we can look their first. Natural gas prices are the lowest they’ve been in 16+ months at below $5 per million Btu. The EIA weekly storage report shows that inventories remain 1% higher than last year and 3.1% above the five-year average. And demand from industry and electricity generation is expected to remain subdued by the recession. But the increased heating demand will put some bullish pressure on natural gas in the two weeks to come.
There will probably be an above average fall in storage levels that should lift prices above $5 but will have a hard time increasing them toward $6+ unless the Arctic air remains beyond the upcoming week. The other big factor that could allow natural gas prices to increase above $6 again is a reduction in drilling that lowers production to match the lower demand. The EIA currently predicts a ~.7% increase in production so producers will probably have to delay a few expansion plans to prevent prices from remaining below $5.50.
Oil prices can also be affected by demand for heating oil, especially in its demand center of the Northeast. There will probably be a couple of significant draws from distillate and propane stocks over the next two weeks that bring them back to average levels. I suspect oil prices will remain mostly flat until reports of complete OPEC compliance and further potential cuts materialize.
Bottom line: The cold snap will probably prevent prices from falling much further from today’s low levels. But a rise above $6 for natural gas or $45 for oil would probably require a long cold snap and/or further OPEC action amidst current recessionary low demand. An exciting result is that natural gas is low enough to compete with and replace coal in some markets, lowering our greenhouse gases even further than current trends.
I’ll be in touch sporadically during the inauguration festivities these next few days. I’ll be shuttling people around DC in our Greenway rickshaws/pedicabs and will report on the scene shortly 
Tags: cold snap, inauguration, Natural Gas, Oil, OPEC, winter
hey big D,
heard they were finding folks in S. Dakota frozen to death, that it’s the coldest it’s ever been there.
and this is just plain confusing – http://blogs.usatoday.com/weather/2009/01/2008-was-globes.html
help sort my mind out here. what is your take on this?
enjoy DC and say howdy to BO for me.
Keas-
How are you? I’m finally able to catch up with the comments and apologize for your wait.
There will always be cold snaps, even in a global warming world. What we have to keep up with is the annual and decadal trends. 2008 was the ~9th warmest year on record and much hotter than the years before the 1980s. But it was a bit cooler than other years in the 2000s for a number of reasons (including the La Nina/El Nino cycle).
Also, the best time to make climate policy progress is in the summer. Even if the winter is warmer than usual, people still like sound of global warming. Scientists need to continue to report the latest temperature data, and it’s up to civil society and elected leaders like Obama to connect with people about the need to mitigate climate change when their vocal support can be rallied most effectively (the hot summer).
We’ll see what 2009 brings-
Dennis
Hey bud,
Thanks for the response. I hear you about the cold snaps coming and going. And that makes sense about pressing for changes when its boiling hot outside.
I’m in NC for a few days (Hayesville) enjoying the mountains of your homeland.
Shalom,
Keas