LONDON (Reuters) - Forecasts for unusual weather conditions in Britain this winter are boosting utility traders' hopes of generating bumper profits just before they close their 2012 trading books.
The winter heating season began October 1 with temperatures below the seasonal norm, and mid-term weather forecasts suggest that relatively cold conditions will continue into early November, before mild and windy weather dominates the rest of winter.
"A cold start to the winter season followed by a mild peak winter season gives us the opportunity to sell our production at high prices before we short the market towards the end of the year, when mild and windy weather takes demand out of the system," a power trader with a utility said.
"It would be a nice lift for our trading books before Christmas," he added.
The season's cold start has already lifted gas prices. Wholesale spot gas prices have risen around 15 percent since the beginning of the month, and forward prices for delivery next summer have gained 5 percent.
Retail household prices have also been rising despite the UK's sluggish economic recovery.
"In recent weeks, colder-than-average realized (and forecast) weather has acted as a catalyst for price increases, as the market shifts focus to these tightening fundamentals (and) we believe European prices need to rise further to balance the market," Goldman Sachs said in a research note this week.
With the recent gains, power and gas prices have broken out of a trading range since February that has made it difficult for traders to make profits.
"The cool start to the winter heating season has been a very welcome change and allows us to sell to a market with heightened demand at decent prices, lifting our end-year results," a gas trader said.
The more common weather pattern for a British winter consists of a mild start followed by colder weather in December and January.
"When this happens, we (utilities) don't make as much profits from high demand early on in the season, and we can be caught short of production later on in winter when it gets really cold, forcing us to buy power and gas on the spot market at high prices to meet customer demand," the power trader said.
Shorting a market means taking an option to buy a product at a later point, making a bet that prices will drop. The trader usually borrows a product from a broker at a certain price and hopes to buy it later at a lower value.
Energy specialists Weather Services International (WSI) said earlier this week they expected to see unusually mild, wet and windy conditions in western Europe between November and January.
The U.S.-based company predicted that a stretch of cold weather was likely in the first half of November across much of Europe but that conditions would become milder after that.
Meteorologists at Thomson Reuters Point Carbon have said they expect temperatures slightly below the seasonal average for early November but that unsettled and wet weather would dominate the rest of winter, with temperatures near normal.
(editing by Jane Baird)
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