I’m Forecasting Big Gains This Winter

Sean Brodrick By Sean Brodrick, Resource Strategist, The Oxford Club

Oil & Gas

It rises from the eternal sea, ready to wreak havoc on North America. And it has returned even worse than last time. Am I talking about some giant monster? No! I’m talking about “the Blob,” a weather pattern that can supercharge winter weather.

Even better – it can supercharge your energy profits.

It all started back in late 2013. Scientists discovered a very large, circular pool of warm water in the northeastern Pacific Ocean.

The scientists who discovered it called this patch of warm water “the Blob.” Maybe they were fans of old horror movies.

On a map, you would find the Blob just south of the Gulf of Alaska. After disappearing in 2015, the Blob is back.

the-blob

This a map of sea-surface anomalies. See that giant amoeba-like shape I’ve indicated with an arrow? That’s the Blob. It can cause the water to be 1 to 4 degrees above normal.

In fact, scientists say the Blob never really went away. According to measurements made by the Coast Guard, this mysterious patch of warm water just slipped beneath the waves, lurking in the depths.

Under the surface, the Blob prevents the mixing of nutrients in the ocean’s upper layers. This is blamed for toxic algae blooms, as well as food chain disruptions for everything from crabs to whales.

But now the Blob has surfaced and is ready to wreak havoc on weather systems. It can also give a tailwind to select energy stocks and ETFs.

Since the Blob is a huge patch of warm water, it creates a high-pressure ridge in the air above it. The Blob tends to bring more rain to Alaska, while worsening droughts along the continental West Coast.

But the problem for the rest of the U.S. is the Blob’s high-pressure ridge runs a blocking pattern that the Dallas Cowboys would be proud of – just up in the atmosphere.

This “blocking” amps up the polar jet stream over Alaska. It pushes that jet stream to make a more north-south entrance into the northern United States.

jet-stream-pattern

So this amped-up jet stream allows colder Arctic air, straight from the North Pole, to flow farther south than usual.

The last time this happened was the notoriously cold winter of 2013-14. In fact, it was the sixth-coldest winter in 121 years for the Upper Midwest.

That was then. Want to know what’s happening now?

The Blob is already off to a much stronger start this year. I mean much stronger than in the fall of 2013.

Now, we’re talking the weather here. There are no guarantees about anything. I just think it likely that if the Blob is back for a sequel, cold winter weather will follow in its wake.

But even if the Blob turns blah, normal statistics would tell you that this winter is unlikely to be as warm as last winter.

And that means the Blob can be good for heating oil and natural gas companies when the weather turns cold.

For example, check out the United States Natural Gas Fund (NYSE: UNG). This is the largest and most widely traded natural gas ETF, and it tracks a basket of natural gas futures. It has an expense ratio of 0.6%. It is up about 59% since it bottomed in late February. For the year, it is up 6.2%.

To be sure, companies that deal in natural gas are leveraged to the underlying commodity. So you also might want to check out the First Trust ISE-Revere Natural Gas Fund (NYSE: FCG).

This is an equal-weighted index that tracks a basket of stocks in the natural gas business, including Anadarko Petroleum (NYSE: APC), Concho Resources (NYSE: CXO), Devon Energy (NYSE: DVN) and Noble Energy (NYSE: NBL). This index has an expense ratio of 0.62%.

It is up 68% from its February lows. And it’s up about 19.8% for the year.

reverse-vs-natural-gas-fund

As you can see, the First Trust Natural Gas Fund is outperforming the United States Natural Gas Fund, at least so far this year.

This winter, if the Blob sends Arctic blasts storming southward, both funds could be cooking with gas, if you’ll pardon the pun.

Last winter was mild. This one could be a monster, thanks to the Blob. Be sure your portfolio is weatherproof.

Good investing,

Sean