Weather Trends has released a new white paper, titled ‘Anticipating the Climate Black Swan’ applying the idea popularized by Nassim Taleb’s excellent book (The Black Swan, 2007).  Go here for the press release and to download the paper.

 Last week’s lower max temperatures combined with cooler evening temperatures resulted in a light week for US cooling demand. The US population weighted number for the week ending 16 Aug was 54 CDDs, which is -15 vs. normal and -33 vs. last year (same week). More important than the overall US number is the regional breakdown; the weekly CDDs vs. normal were -21 for New England, -29 for the Mid-Atlantic, -35 for the East/North-Central states and -24 for the West/North-Central States (-9, -28, -53 and -59 vs. LY, respectively). The only US region to experience above normal cooling demand last week was the Northwest. The current week will see a shift to higher demand in the central and eastern states, as a high pressure system brings warmer temperatures to the northern tier of the country for the next 3-4 days. However, this warming looks to be short lived as next week’s pattern looks to be similar to the one that we saw last week, with most of the cooling demand restricted to the western US. We should note that from an energy demand perspective, the Weather Trends temperature outlook for much of the US has verified this summer, and demand expectations which we generated last year are on target to support the seasonal CDD profile.  In the tropics, Tropical Storm Fay is closely following the track that was issued by the National Hurricane Center, and is now over land in southern Florida, moving NNE at approximately 9 mph. TS Fay has posed no threat to rigs, and crude subsequently continued its’ decline as it dropped for the fourth straight session. Most estimates are in agreement that crude inventories rose last week (verification pending), as benign weather allowed for arrivals to pick up. Other than Fay, the rest of the Gulf and the Caribbean is pretty quiet. There is currently a system in the central Atlantic that we are monitoring for development; warmer ocean temperatures and an increase in convection over the last 36 hours serve as positive factors, but the upper air pattern as of this morning is uncertain.

A combination of cooler weather in the central and eastern combined with weaker fundamentals including overall demand destruction continue to exert downward pressure on energy prices last week (September Crude/NG), and this bearish market sentiment carried over into Monday and Tuesday’s trading on NYMEX, before the inventory report moved the market back up a bit on Wednesday.  Per last week’s weekly discussion, most of the heat was restricted to the west/southwest states, and population centers from the midwest through the east were spared any weather that would have caused CDDs to spike. Other fundamental news has been at least as important as the cooler weather, including the stronger USD which is at a 5 yr high vs. the Euro, more evidence for weakening demand from China, and the continuing reduction in overall US demand. Consumers are responding to the higher CPI (energy/food inclusive), and the July and August figures should reflect this change in behavior. The June 2008 Energy expenditure index was +6.6% higher than May, with energy commodities increasing 34.7% for the first half of the year. July CPI statistics will be released on August 14th. The current week’s weather should be another period with generally light electricity demand, as the cooler pattern is the dominant feature and evening temperatures are well below normal across many demand centers. Even hurricane activity is secondary at the moment; last week’s Tropical Storm Edouard cut a path right through some oil fields off of eastern TX, and the market reaction was muted. This is quite a contrast from last year when even the sight of a potentially threatening system lead to high volatility. The tropics have a couple of systems that are currently being monitored but there does not appear to be a high probability for development (the GFS model has picked up on a potential pattern that could lead a storm right into the MidAtlantic in a couple of weeks). 

While it is still early, traders will start paying more attention to the tropical depression (TD4), which is currently about 1580 miles east of the Lesser Antilles Islands.  So far, the 2007 season hasn’t provided any real reason for energy traders to be concerned, but expect more activity around this one over the next few days if TD4 strengthens.  Right now, models are projecting a wide range for the potential track of TD4; the GFS model brings the system up the Atlantic towards the eastern seaboard, while the Candian and UK models are strengthening the ridge and steering into the southern Gulf of Mexico.  Recent satellite imagery shows that this system is still not very well organized.  Weather Trends International will continue to update on the conditions as they develop over the next few days. 

This morning, the Hurricane forecasting team at Colorado State University (Bill Gray) officially reduced their numbers for tropical storms in the Atlantic Basin for the 2007 season.  The CSU group is now calling for 15 tropical storms, 8 hurricanes and 4 major hurricanes.  This is down from their May 31 forecast, which was calling for 17, 9 and 5 respectively.  While the 2007 season is far from over, there are a few major reasons for the decreased activity.  Dust storms, which can be hurricane suppressors, have been visible from satellite imagery moving across the Atlantic into the Caribbean and are more prevalent than what many had expected at the onset of the 2007 season.  Further, earlier in the year forecasters at NASA (among others) were calling for a strong La Nina to develop which would be conducive for tropical system formation; that hasn’t happened as we have seen relatively neutral conditions along the equatorial Pacific Ocean.  A final factor is that SSTs in the Atlantic Ocean have not been warm enough for an extremely active season to develop.  Weather Trends International is keeping our total named storm numbers unchanged at 12-13.