Weather Forecasts and Natural Gas Futures Price Dynamics

Abstract

Weather plays a key role in determining the demand for natural gas because of the fuel’s use in heating and cooling systems. As a result, many natural gas traders use weather forecast data to better predict natural gas price movements. In this thesis, temperature forecast data from key locations in the United States was used to study the dynamics of price movements in natural gas futures markets. Specifically, variations between consecutively released long-term temperature forecasts were found to have a significant relationship with intraday natural gas futures price changes. This relationship was also found to be strongest during the wintertime and the clearest effects were found when isolating the 00:00 UTC and 18:00 UTC daily weather forecasts. These results built upon the related work in the field and the methodology provides a framework to further study how weather forecasts impact natural gas futures prices.