The Polar Vortex Event Makes for Confusing Commodity Trading

The Polar Vortex Event Makes for Confusing Commodity Trading

No spike in natural gas prices and a short-term spike in grains may not have been the expected effects of the coldest weather in 34 years.

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In an article we wrote on January 4th titled “Polar Vortex Could Cause Natural Gas Prices to Spike Again” which can be found here, we stated “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.” We were, of course, referring to the polar vortex, a now infamous weather pattern that affected the lives of 250 million Americans with 90 million experiencing temperatures of 0°F or below.

The spike in natural gas futures prices never materialized, in part due to the first sentence of the above quote. Also stated in the January 4th article was this quote from AccuWeather Senior Meteorologist Brett Anderson discussing the expected short-duration of the vortex event; “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.” Things did change and rather quickly, but to the side of warmth. The spike we saw in nat gas prices in mid-January quickly reversed as the FASTEST 3-day warm-up on record in Chicago of +66° became the prediction.

 

Other Commodity Effects

The short duration of the polar vortex event left most commodities unaffected, save for one or two-day disruptions. Grain elevators and some trading operations were closed, leaving ranges wide and markets less liquid than normal for about a day on Wednesday, the coldest day of the event. The disruption to operations put a premium on near-term delivered shipments, but barge shippers expect freight values to weaken early February according to S&P Platts.

The most lasting effect could be to crude oil, which should still only be a short-to-medium term effect. Crude is set to begin a seasonal period of strength which typically starts in about the 2nd week of February and lasts until mid-March, only to resume again in early April. This strength could be delayed as motorists in a very large swath of the U.S. were made shut-ins, first by a blast of snow, then by the cold of the vortex event. Watch the EIA data for larger gasoline inventory builds and lower refinery utilization figures. If that does not materialize, then it looks like commodity prices may have escaped the polar vortex with no signs of frostbite. 

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