Late Summer Heat Wave Would Have Been Impressive Two Months Ago

Aug 20, 2014 11:51 am ET

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Aug. 20 (Bloomberg) -- Temperatures will rise into the high 90s Fahrenheit (mid-30s Celsius) across the U.S. South from today, ushering in what may be the summer’s hottest days.

The heat wave is noteworthy only in its rarity this year.

“It’s impressive relative to the kind of benign summer that we have had,” said John Feerick, a meteorologist with AccuWeather Inc. in State College, Pennsylvania. “It’s a substantial heat wave, but it might not be as big a deal or as noticeable in any other summer.”

The promise of heat helped push natural gas prices to the highest level in three weeks yesterday. Warmer weather means air conditioning, and that means more demand for electricity. Power plants across the U.S. account for 31 percent of gas demand.

To have a real impact on the markets, though, the heat would have to be more widespread, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland.

“It’s impressive locally for the power markets relative to the summer; it’s one of the stronger events,” Rogers said. “On a national basis, from a natural gas injection standpoint, it is not that impressive.”

Texas Heat

Still, a hot day in Texas can be good for investors.

Texas accounted for about 17 percent of natural gas use for electricity last year, followed by Florida with 13 percent, said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York.

Rogers said he wonders if forecast models are overdoing the projections of sweltering temperatures and the heat won’t be as sweltering as anticipated. In any case, the heat may be arriving too late to spur a rally in prices.

“Had it happened in June, this sort of event might have made a difference,” Viswanath said.

Lowe’s Cos., the second-largest U.S. home-improvement retailer, cut its full-year revenue forecast today in part because it didn’t sell as many air conditioners as anticipated.

Cooler air is around the corner. If you measure the season the way meteorologists do, fall begins on Sept. 1 -- which is less than two weeks away. If you measure it the way your elementary school teacher did, there is just about a month left.

Then temperatures become relatively moderate, and what is called the “shoulder season” gets under way. There are two such times during the year, one in the U.S. spring and the other in the fall, when it isn’t hot or cold enough to make a dent in natural gas inventories.

The late-August heat “doesn’t change the longer term trend of ample production and relatively light load,” Viswanath said. “We will likely see prices deteriorate once we get through the heat.”

--With assistance from Christine Buurma and Matt Townsend in New York.