Wednesday, October 04, 2006

Predictions for a warm winter.

I've read a few news items suggesting that energy prices fell yesterday because of a fear of what today's inventories would reveal as well as a rising belief that OPEC won't cut production meaningfully. Perhaps, but the following looks like a more likely culprit to me. Note the reference to 1998, which I'm sure put a chill in any energy trader's heart.

There is a bit of an oddity to this, in that this September was actually rather colder than normal.

SmartMoney: El Nino to Sap Storms, Warm Winter


Blaming faster-than-expected El Nino conditions in the Pacific Ocean, forecasters at Colorado State University on Tuesday repeated their call for below-average storm activity during the rest of the Atlantic hurricane season.

"Typically, El Nino conditions put an early end to hurricane formation in the Atlantic basin," said William Gray, a hurricane forecaster with the closely watched forecasting team at Colorado State. "This year, El Nino has developed faster than almost anyone predicted."

El Nino is a weather phenomenon involving unusually warm surface temperatures in the Pacific Ocean that can have profound consequences for climate, including warm and very wet summers in South America and warmer-than-normal winters in parts of North America.

Gray, in a telephone interview, described the current El Nino as "weak to moderate" compared with 1997-98 phenomenon, which was the strongest on record and helped sink oil prices.

That El Nino, which slashed heating fuel demand in the Northern Hemisphere, occurred just as the Organization of Petroleum Exporting Countries announced an increase in oil production quotas that proved ill-timed as it corresponded with the start of the Asian economic crisis. Crude oil prices plunged to near $11 a barrel and didn't recover for two years.

A top forecaster at the National Oceanic and Atmospheric Administration, Vernon Kousky, said last month, "There is a reasonably good chance that this El Nino will strengthen to a moderate event. For moderate and strong El Nino events, the Northeast (U.S.) has a greater chance of experiencing warmer-than-average temperatures."