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Hot summer start likely a boon to coal, gas, but cooler weather may be coming

A warm start to the summer has likely improved demand for coal and natural gas, but changing weather patterns could soon cool off hopes the hot weather will have a constructive effect on long-term prices.

This year saw the hottest May on record in the U.S. and June was among the five hottest since 1960, said Todd Crawford, chief meteorologist at The Weather Co. Hot summer weather is among the catalysts U.S. coal producers had been hoping could reduce stockpiles at U.S. generating facilities, but a heat wave gripping parts of the U.S. is likely to relax soon.

"We started summer early and it's been pretty hot through June, and now we're starting July hot as well," Crawford said in an interview with S&P Global Market Intelligence. "If we had the same pattern through the summer, we'd likely end up as a top three hottest summer on record, but we expect a change in the pattern here in probably the next couple weeks."

The Weather Co. is predicting cooler-than-normal temperatures emerging across much of the eastern U.S. as warmer temperatures begin to become more prominent across western North America. The back half of the summer is likely to be much cooler, Crawford said, but "if we don't get this pattern change by mid-July, then all bets are off and we're going to end up with a historically hot summer overall."

That could drive gas prices higher and lift the prospects for coal as well.

On an earnings call before the summer started, Cloud Peak Energy Inc. President and CEO Colin Marshall noted seasonal demand is increasingly important to watch because coal and gas remain so readily and cheaply available, utilities feel little pressure to secure long-term coal supply contracts.

"We're optimistic there will actually be some demands, they'll actually be caught out a little bit," Marshall said. "I think they're comfortable that there's enough coal and gas available to — given their current stockpiles — see them through the summer and then they can always buy what they need going into the winter."

As helpful as a hot summer can be for coal producers, a cold winter is often eyed even more closely, as demand tends to be higher in winter. Crawford said early evidence suggests an emerging El Nino could mean a cold winter is coming and bringing with it an early start to the heating season.