What to buy when the weather changes
Monday Jan 15, 2007
You can’t ask for better proof of “the Scarsdale Effect” then the bizarre pattern in oil prices and weather temperatures.
In “sunny” California, there is a run on space heaters (as they do not have furnaces to turn on), and orchard managers are gassing up “hail cannons,” explosive devices that use sound to shatter incoming ice in a desperate attempt to protect their harvest.
In Colorado, they are dropping food from C-130, and in the Midwest, city managers are assessing the death toll from the latest in a series of frigid storms.
But on the East Coast, specifically New York City, home of the NYMEX -- the dominant futures exchange where much of crude oil’s price is set, it has been a balmy 60 degrees.
Heating fuel is indeed being consumed across the country, but you cannot convince a trader who has just eaten lunch at an outdoor café to boost contract prices.
However, all this is about to change: This odd weather is no fluke result of global warming. Rather, it is the specific result of the Pacific Ocean temperature cycle known as “El Nino.”
And as that phenomenon starts to wane, those traders will soon be hip deep in the same horrid weather the rest of the country has enjoyed. In fact, some of the East Coast’s most memorable winters have come at exactly this point in the cycle.
This makes heating oil, and indeed most forms of energy that can be used to heat homes, incredibly underpriced!
(But not for long…)
Adam Lass,
Senior Market Analyst, WaveStrength
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