Our Mid-Atlantic energy analyst friend writes:

The Browning World Climate Bulletin is the best source we have seen for weather forecasting. Copyright restrictions prevent us from sending the whole document along, but the following excerpts summarize the its outlook rather well (spoiler alert: This is not for the faint of heart if the reader is in the natural gas production business):

·        The cold pool in the North Atlantic is blocking the flow of the Gulf Stream and creating a positive NAO atmospheric pattern, which has superheated Eastern North America and warmed Western Europe. This will continue through winter.

·        The strong El Niño is creating more pre­cipitation and where the cooler air meets the hot Gulf and Atlantic air, from Texas to the Midwest, there have been deadly storms and floods.

·        The El Niño is expected to fade by early sum­mer and there is a 70% chance that drought-inducing La Niña conditions could start by late autumn.

The small “good news” for the natural gas industry? As the Bulletin notes: 

So enjoy the bi­zarre winter, as the West chills out and the East en­joys a warmer winter with lower fuel costs. You probably won’t see another like it for centuries.

With all this bad weather forecast, record gas storage, and continued improvement in drilling results, why has Henry Hub pricing rebounded fairly strongly lately?

Aside from the possibility that natural gas may have gotten oversold, another reason might rest with some decent evidence that natural gas production might (finally) be declining.  The decline in gas rig count over the last 18 months has had about the same effect on production volume as punching Mike Tyson in the face. But the latest EIA-914 report on monthly natural gas production shows a Lower 48 month-over-month decrease of 1.1% in October. Almost every major producing state had a decrease (Ohio, BTW, had the biggestgain). It is obviously too early to call this a trend, and we know it would not take too much in the way of increased pricing to generate a demand response.  But: Baby steps. More on the natural gas production later this week.