A build up in snow fall across Eurasia could foreshadow another Arctic-infused winter across the U.S., fueling a potential run-up in natural gas prices and related exchange traded funds.
While the United States Natural Gas Fund (NYSEArca: UNG) has dipped 10.4% on the mild summer season and increased build in inventories, natural gas could rise on increased demand if we experience another frigid winter.
Some observers argue that the amount of snow covering Eurasia in October could indicate how much icy air will blow down from the Arctic to North America in December and January, reports Brian K. Sullivan for Bloomberg.
According to the National Climatic Data Center, a similar pattern during the Northern Hemisphere winter helped pushed down temperatures over the first three months of the year to their coldest across the 48 contiguous states since 1985.
Judah Cohen, director of seasonal forecasting at Atmospheric and Environmental Research, points out that snow has covered 12.2 million square kilometers of Eurasia as of October 13, compared to 10.8 million square kilometers for the same day last year.
In October 2013, about 12.9 million square kilometers of snow covered Eurasia. The record was 17.2 million in 1976. Cohen also noted that snow can build and melt, so the numbers may not consistently rise.
While the U.S. is enjoying an energy boom through new shale oil extractions, natural gas prices have not perfectly priced in the increased supply. For instance, in the Northeast, natural gas prices are rising on concerns that there is not enough infrastructure to move the required amount of natgas, risking a repeat of last winter’s record prices, Bloomberg reports.
“People are scared,” Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management, said in the article. “The market is reflecting that despite prolific production growth in certain areas, the infrastructure has not been expanded to distribute that gas all the way across the country. There’s still a very real and very significant constraint.”
NYMEX natural gas futures currently trade around $3.81 per million British thermal units.
United States Natural Gas Fund
For more information on the natgas market, visit our natural gas category.
Max Chen contributed to this article.