Study links US weather forecasts to natgas market

CHICAGO, May 22 (Reuters) - Significant changes in U.S. government weather forecasts can move the price of natural gas within minutes, according to a Houston-based weather researcher in what he said was one of the first studies of the correlation between weather predictions and gas markets.

Aaron Studwell, senior manager and meteorologist with Weather Insight, told participants at the industry's GasMart in Chicago this week that when the U.S. National Weather Service alters its forecast to call for temperatures outside the 30-year average, gas markets often react swiftly.

In Weather Insight's winter study, the company looked at forecasts for New York City's LaGuardia Airport over the past two years, noting a midday change in the forecast that called for temperatures much below the 30-year average led to a "strong positive price trend" in eight out of nine occurrences within an hour of the forecast's release.

Studwell said there were 20 occurrences where both of its "temperature criteria" were met, and in 16 of 20, or 80 percent, of those occurrences natural gas prices rallied an average of 8.1 cents within the hour.

In its summer study, Weather Insight looked at summers 2006 and 2007 for Chicago, noting a greater than average change in the 12-hour forecast update combined with a call for temperatures much above the 30-year normal showed up in an average gain of about 3.4 cents within 15 minutes on every occurrence for a particular forecast day.

The summer study also showed an average 6.3 cent gain within an hour of the updated "warmer" forecast.

While warmer forecasts were studied for the winter in New York and showed no "tradable patterns," Studwell said if the 12-hour update in the summer in Chicago called for cooler weather there was again a market reaction.

In six out of eight occurrences natural gas prices fell an average of 6.9 cents after 30 minutes or an average of 14.3 cents after an hour of the updated cooler summer forecast.

Studwell said the company focused on natural gas futures and would conduct additional research on physical natural gas markets and NYMEX spreads. (Reporting by Eileen Moustakis, editing by Matthew Lewis)