The World of Energy Trade Floor Meteorology10 Nov , 2011 | 4
Energy Trade floor meteorology is by far my favorite weather job in my career. Hands down, no competition! Energy Trade Floor meteorology requires you to have strong communication skills, weather analysis and forecasting skills for short, medium, and long term, knowledge of the commodities markets, and the list goes on and on! In my previous post, I talked about how Energy Trade Floor meteorology can be a six figure income. So, what is it about the industry that makes the position quite lucrative? Let’s discuss.
Energy Trade Floor Meteorologists are usually part of a Fundamentals Team that support Power and/or Natural Gas traders. Weather is one of (many) of the fundamentals that drive Natural gas and Power prices. The prices are generally driven by supply and demand principles (along with speculation…but that’s for another post!
In this post, I’ll discuss the Natural Gas side of the business.
So let’s take a more short term example of Natural Gas…It’s Winter. Let’s say it’s forecasted to be very cold in the Midwest two days from now, say “much below normal in temperatures”. Let’s just “pretend” the top weather vendors ( Earth Sat, WSI, and Commodity WX group) are also calling for similar temperatures. However, you as the energy trade floor meteorologist alert your traders it’s going to be much colder than the vendors. Your traders lean a bit “long” in their position because of your call.
Overall, the perception is there will be a huge demand for heating (ie people, businesses are going to turn on their heaters). So the utilities and generators are ready.
Now two days later….it turns out to be MUCH COLDER…the power plants are not prepared for how cold it is. And let’s say unexpectedly there are some plant outages (ie some gas fired plants go down for some maintenance issue)…or they’re some trouble with a gas pipeline in the Midwest…bottom line, the utilities do not have enough supply to meet demand.
This can cause a spike in the price of Natural Gas. Because your trader was “long” in his/her position before the spike, guess what…they just made some good cash! Not only were you right in your weather call about it being colder, but the other fundamentals were in your favor, too. And they will hopefully thank you for giving them the right call. Because if you were super confident and said it was going to be “warmer” than the vendors and they took off some of their length (or went short), the traders would be on your ass like there is no tomorrow! And FYI, this was just a rudimentary example…it’s a lot more complex than this
Natural gas traders can potentially win or lose millions of dollars depending on what position they put on. The goal of the trade floor meteorologist is to communicate weather changes (including temperature, precipitation,), weather model changes, climate diagnostics including teleconnections (ie El Nino, La Nina, PDO, PNA, NAO, AO, MJO, etc etc), and vendor forecast changes in real time so traders can stay ahead of any potential major moves in price that may be driven by weather.
This means that you have to be on your A game…no slacking off because if you’re too late to the party and the price for these commodities have already moved, your traders may have missed out and they’ll come yelling at you.
It’s also interesting to see the a daily “fight” between “perception in the market (ie vendors)” vs your own weather forecast play out on the trade floor. I’ll get into more discussion about that and other specifics of the role of an Energy Trade Floor meteorologist in another post.
It makes Energy Trade Floor meteorology a high risk/high reward type of position. Your bonus generally depends upon your traders performance. In one of my previous posts, I talked about how Energy Trade Floor meteorologists can have a Monday-Friday day job. It’s probably one of the most sought after positions for an operational forecaster. But it’s hard to get in. I’ll give you some insights on how to land this incredible opportunity. More to come…stay tuned! (Photo credit: CPC)