LAKEWOOD, NJ (Opis Energy Group) -- December 4, 2000 -- While the thermometer is not the sole indicator of where heating oil prices are headed, the volatility seen in NYMEX No. 2 contracts the last couple days could be a preview of trading sessions to come as volatile winter weather keeps traders on their toes.
If anyone has somehow forgotten last January -- when unseasonably warm weather gave way to a cold snap that caused oil prices to spike -- they could have their memory refreshed over the next three months.
"You're going to see January 2000 repeated several times this year," said Michael Schlacter, chief meteorologist with consulting firm Weather 2000.
While forecasters are in agreement that this winter will be colder, Heating Degree Days (HDDs) don't tell the whole story as far as volatility is concerned. Since HDDs accumulate only when daily average temperatures are below 65 degrees Fahrenheit, they give no indication of just how unseasonably warm some days are.
According to the National Weather Service, November saw 542 HDDs in New York City (compared to 398 in November last year), 710 HDDs in St. Louis (compared to 370 a year ago), and 544 HDDs in Washington, D.C. (compared to 348 last year). Definitely colder this year, but the HDDs belie the stretches of mild weather seen last month.
Schlacter said December, January and February will be even more volatile in that weather patterns may persist for only days at a time rather than weeks at a time as in November.
"You could see a lot of flip-flops. In the same week, you could see temperatures 30 degrees apart," Schlacter said. He said traders need to be careful extrapolating or drawing conclusions under those conditions, adding that "it's kind of like trying to determine the outcome of a baseball game inning by inning."
And with PADD 1 distillate stocks 30 percent below last year's level, analysts cite today's dramatic upswing in NYMEX heating oil as a good example of the potential volatility that exists moving into the heart of winter.
- Brad Addington (firstname.lastname@example.org)
Copyright 2000, Oil Price Information Service.