Analyzing Weather Data for Energy and Commodity Markets
There are a number of factors that influence the supply and demand of energy and commodities. These include political events, such as war or civil unrest, market dynamics, financial conditions, production quotas, and, of course, the weather. Weather patterns that affect the supply and demand of energy and commodities are a key driver in determining their prices. For this reason, weather-sensitive industries are reliant on access to quality, timely, and accurate weather data, both observed and forecasted. Having access to this information allows companies to plan, prepare, and prevent the potential negative impact adverse weather conditions can have on business.
We recently co-hosted a “Data in Action” webinar with our partner MDA Weather Services, a leading provider of unique weather information products and services for energy and commodities markets. MDA Weather Services offers accurate temperature, rainfall, wind, and cloud forecasting, as well as clean, enhanced weather data. This information enables better forecasting of energy demand and load models, renewable generation forecasts, and worldwide crop-monitoring. Joining forces with MDA, we aimed to not only show the breadth of data it produces, but also the advanced data management and analytic capabilities of the ZEMA Suite that assist with our clients risk mitigation efforts and operational decision-making.
Gas Price vs. Temperature
To demonstrate how easy it is to compare data sources in ZEMA, one of the first examples we looked at was the relationship between changes in the weather and the price of natural gas in Chicago. Using ZEMA’s Market Analyzer tool, we graphed MDA EarthSat’s minimum, maximum, and average temperatures at Chicago O’Hare airport from the past seven months against ICE’s Chicago Citygates day-ahead gas price. As you can see from Figure 1 below, it is quickly apparent that there is not a strong correlation between gas price and temperatures, which would prompt analysts to look at other factors that may be driving the price of natural gas at Chicago Citygates.
Power Price vs. Temperature
For the second example, we analyzed the link between the average system load across all PJM hubs and the Cooling Degree Day values in the Philadelphia region since April 2013 and showed the strong correlation between the two. According to Investopedia.com, the definition of Cooling Degree Day is “the number of degrees that a day’s average temperature is above 65o Fahrenheit and people start to use air conditioning to cool their buildings.” Similar to the previous example, the increase in temperature pushes the demand for power higher to support the increased use of cooling systems, as seen in Figure 2.
In our final example, we compared MDA’s US Daily Forecast Report, published every seven days, with MDA’s Actual Average Temperature report for La Guardia Airport in New York City. Using a priority function in Market Analyzer, we blended US Daily Forecast reports from January to June together and then pitted the results against the Actual Temperature report to see the variance. Other formulas applied to the data included a median formula as well as a standard deviation formula. The graphs in Figures 3 and 4 below show that the difference between MDA’s forecast and actual temperatures have mostly remained within the tolerance band of 3.46 degrees.
Using the advanced analytical capabilities of the ZEMA Suite, traders, business analysts, risk managers, and anyone whose business decisions are affected by the weather are better equipped to predict a move in the markets, identify tradable patterns, and prevent any possible fall-out resulting from adverse conditions.
For more information on how ZEMA can meet your organization’s business needs, book a free demonstration. If you would like further information on MDA Weather Services’ products you can contact Christopher.Hyde@mdaus.com.