Polar Vortex Could Cause Natural Gas Prices to Spike Again

Polar Vortex Could Cause Natural Gas Prices to Spike Again

The quiet start in 2019 for Nat Gas could change very quickly

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Natural gas futures have had a volatile few months. After trading in an approximately 8% range (4% up or down) since early 2017, October broke out with a near 5% jump higher. That was followed by an aggressive 37.7% rally. December gave all of that back; declining 33.3% from November’s closing price and even falling below October’s opening price by 4%. That huge jump in price volatility could continue, based on weather and seasonality. If you trade nat gas, you look and supply and demand through the prism of weather and seasonal patterns. While seasonality tends to point toward lower prices from the start of January to the end of February (see chart), if you believe forecasters, an occasional weather phenomenon may cause a spike in demand toward the end of January.

According to AccuWeather, we may have a polar vortex event in the next few weeks drastically lowering temperatures in the northern and especially the northeastern parts of North America.   

The Polar Vortex and Nat Gas

The polar vortex is a large area of low pressure and cold air surrounding both of the Earth's poles. It weakens in summer and strengthens in winter. When the stratosphere warms suddenly over the North Pole, it weakens the polar vortex and causes the normally pent-up frigid air to be displaced southward over one or more continents of the Northern Hemisphere. According to AccuWeather Senior Meteorologist Brett Anderson, “…a major stratospheric warming event has begun." Also via AccuWeather, “there are no signs of long-lasting, seriously cold weather for the northeastern United States through the middle of January, but things may change late in the month.” For now they are expecting a significant downturn in temperatures in the Northeast sometime during the third or fourth week of the month but are not yet predicting a polar vortex event, but considering that nat gas inventories are -647 billion cubic feet (bcf) below than the 5-year average, and -623 bcf below this time last year, futures prices could rise dramatically if the vortex lets that cold air loose. 

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