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June 21, 2016

US Seasonal Outlook: Biggest Late-Summer Heat Moves Eastward Into Midwest

Atlantic Tropics Now Looking More Active Than Originally Expected

In its latest seasonal forecast for the July-September summer period, The Weather Company, an IBM Business, is predicting warmer-than-normal temperatures across most of the US, with the exception of Gulf coastal regions. The most anomalous warmth is expected to extend from the northern Rockies to the Great Lakes. (The Weather Company seasonal outlooks reference a standard 30-year normal (1981-2010)). 

“Even with lingering El Nino atmospheric forcing and a favorable sub-seasonal signal, June will likely end up rather warm across much of the US,” said Dr. Todd Crawford, Chief Meteorologist, The Weather Company. “Given the fact that summers transitioning from El Nino to La Nina typically get hotter as the summer progresses, this sets a rather interesting tone for the rest of the season. Our updated forecast for June-August cooling-degree-days (CDDs) is now at 996, or just under the level of the very hot summer of 2012. We expect the core of the heat to move slowly eastward during the rest of the summer, from the western US into the north-central US.”

The Atlantic tropical forecast continues to indicate the most active hurricane season since 2012, with more activity expected for the latter half of the season.  The new forecast calls a total of 15 named storms, which includes 9 hurricanes, 4 of which will be major hurricanes.  These numbers are all one higher than the previous forecast.

“In the past month, we’ve continued to see warming North Atlantic Ocean temperatures,” said Crawford. “Forecasts from both our dynamical and statistical models have also trended more aggressively with time, so we’ve increased our storm numbers by one across the board. While surface pressures are still quite high in the tropical Atlantic which would imply limited activity in the Main Development Region early in the season, we expect a really big back half of the season, along with the continuation of storms developing closer in towards the US.”

July Forecast By Region

  • Northeast* – Warmer than normal
  • Southeast* – Warmer than normal, except FL
  • North Central * – Warmer than normal
  • South Central* – Warmer than normal, except Gulf Coast
  • Northwest* – Warmer than normal
  • Southwest* – Warmer than normal

“The one thing June has shown us is at the current power demand levels, the marginal MW has moved the needle to where out-of-the-money coal units were needed to balance the grid,” said Jeff Richter, Principal at EnergyGPS. “As a result, the cash prices have moved up to where the cost of burning natural-gas-fired generation for power is somewhat neutral to coal-fired generation. Since the middle of June, we have seen coal output across several ISOs increase as well as natural-gas-fired generation. With the July forecast showing warmer than normal in over 90% of the country, we do not expect any downturn in the cash market. If we roll into the month and the forecast reverts to normal, the story might be a little different.”

August Forecast By Region

  • Northeast – Warmer than normal
  • Southeast – Warmer than normal
  • North Central – Much warmer than normal
  • South Central –Warmer than normal, except southern TX
  • Northwest – Warmer than normal
  • Southwest – Warmer than normal

Richter states, “We will have a better understanding in the next few weeks of how the production component looks heading into the third quarter of the year.  In the early part of June, maintenance work kicked in so that the daily average slipped down to 70.5 BCF/d and is currently sitting around 71 BCF/d. This is down more than 1.5 BCF/d compared to last year at this time (it should be noted that we saw an increase at the end of June last year due to new production coming back online). With the weather forecast continuing to be warmer than normal in most parts of the country the production numbers will become more and more important to the overall supply/demand balance of the gas grid and the storage surplus number will likely move closer to 0 by the end of the summer.”

September Forecast By Region

  • Northeast – Warmer than normal
  • Southeast – Warmer than normal
  • North Central – Warmer than normal
  • South Central – Warmer than normal
  • Northwest – Cooler than normal
  • Southwest – Warmer than normal

“By September, the Los Ramones II expansion pipeline into Mexico should be flowing gas (0.80 BCF/d capacity) as well as the 2nd train at Sabine (0.60 BCF/d capacity). We will know by this time if the incremental capacity is being filled by existing production or new production points on the grid. If the former is true and the September forecast holds, the grid will be much tighter and as a result the forward curve will move up. If the latter holds true and the weather is closer to normal, the grid could feel soft and the front of the curve will divert from the winter price strip.”

The Weather Company provides customized weather information to global commodity traders via its industry-leading WSI Trader website. The Weather Company will issue its next seasonal outlook on July 26. 

*To view the map defining The Weather Company’s US regions, click here.