At a Glance

• Gas prices spiked when weather forecasters announced colder-than-average temperatures in the East
• Salient uses ML to skillfully weight and blend our proprietary model with the leading dynamical models from NOAA and ECMWF 
• Salient predicts below average temperatures east of the Rocky Mountains for several weeks in January, but a return to warmer temperatures in February

Impact of cold temperatures: gas price volatility

Welcome back from the holidays. If you live in the Northeast like me, we were enjoying a mostly mild winter until the holiday season arrived bringing our first snowfall and a return to colder winter weather. Recent warm winters and high gas storage levels have kept the US spot prices low. However, the latest Argus report warns that “US natural gas markets may be subjected to more dramatic price swings in 2025 as growing LNG exports and increasingly price-sensitive producers place greater pressure on the US' stagnant gas storage capacity.” The report also notes that regions like New England will experience the most spot price volatility due to the lack of underground gas storage.

Weather forecasters predict extreme cold

These predictions are already unfolding. Natural gas futures surged this week following below normal temperature forecasts for January. CNBC reported on December 30 that “Natural gas February futures rose around 15% during the session after an updated outlook by The Weather Co. and Atmospheric G2 released Sunday showed that the temperature forecast for next month is expected to be colder than average in the East, specifically from Florida to Maine as well as certain parts of the Great Lakes.”

According to John Kilduff, founding partner at Again Capital, beginning January 9 and in the weeks following, there could be natural gas “freeze-offs" along the Eastern seaboard and bone-chilling polar vortex weather which are causing a spike in natural gas prices [Squawk on the Street].

Will the cold continue?

Salient's highly reliable weather forecast, extending up to a year in advance, predicts that the current colder-than-normal temperatures will persist through most of January. Salient provides multiple climatological reference periods for calculating anomalies to meet the specific sector needs. Using a 10-year norm for comparison, the colder-than-normal temperatures are expected to continue through the week of January 20 before returning to normal across most of CONUS (Continental United States). Departures from average in the last week of January are predicted to range within +/- 3°F relative to the 10-year norm.

The Salient tercile forecast offers insights into the likelihood of above-, below-, or near-normal temperatures.  Based on the latest monthly forecast for February, we predict warmer-than-normal monthly average temperatures across most of the CONUS.

Areas with the highest probabilities for above-normal temperatures are represented by the darker areas of the reddish-brown gradient. This view utilizes the 40-year trend-adjusted Salient Climatology as the baseline for normal.

Assessing the risk of exceeding thresholds

Monitoring weekly averages provides directional signals, offering lead time for trading and hedging strategies. Some decisions hinge on the exceedance of specific thresholds. When assessing the risk of certain temperature thresholds, it is important to understand relative risk—or the forecasted probability compared to climatological likelihood. You can define the appropriate threshold depending on your risk tolerance. For instance, in the case of gas freeze-offs or increased heating demand, you might assess the climatological risk of weekly average temperatures falling below freezing. Using Salient’s Risk Insights feature, you can define risk levels using relative risk by comparing forecast probability to climatology probability or absolute probability.

An alternative view highlights CONUS regions at risk of temperatures below the 10th percentile, enabling you to evaluate risks relative to normal temperatures rather than absolute values. For example, areas with a >5x risk of falling below the 10th percentile compared to a 40-year trend-adjusted climatology are highlighted in red. Extreme temperatures, even if not below freezing, can still significantly impact energy demands. The above risk assessment is based on the weekly mean. To evaluate the risk of daily temperatures below freezing you can use Salient’s downscale or daily risk views. For example, the risk of below-freezing minimum temperature in Atlanta is greater than 75% for every day this week.

In Charlotte, NC, the forecasted probability of temperature anomalies below the 10th percentile of a 40-year climatological distribution is 56% or a >5x climatological risk of experiencing such anomalies.

The bottom line

Weather forecasts are inherently uncertain, but Salient’s data-driven approach firmly establishes calibrated bounds of uncertainty, enabling you to utilize probabilistic forecasts more effectively. By integrating Salient’s forecasts, you gain increased accuracy and reliability for more confident and strategic decision-making.

Go deeper on data best practices in subseasonal-to-seasonal weather forecast with climate scientist Brian Zimmerman’s talk for the US Climate Variability and Predicability Program (CLIVAR, ~20 minute video).

---
Disclaimer: Weather predictions provided are for informational purposes only. Forecasts may be inaccurate due to the complex nature of weather systems.

Investors use this information at their own risk. Past performance does not guarantee future results. We advise conducting personal due diligence and consulting financial professionals before making investment decisions.

Salient Predictions is not liable for any financial losses resulting from the use of this information. By using these predictions, you accept full responsibility for your investment outcomes.