Good Afternoon,
As expected the River Forecast Center has slashed flows across the Mid-C; let’s start by looking at the month on month changes:
This recent forecast is a material departure from the last five weeks with cuts across all reported periods, the smallest being in November with just 500 aMW pared from last week’s forecast. The biggest drop was in Feb (it’s only out through the 9th of the month) with a 750 aMW dip week on week, but note that it is a 1500 aMW cut from two weeks ago.
The change should come as no surprise, the tea leaves were easy to read, we’ve been preaching a restatement of Nov for weeks. What is surprising to me is that more cuts are being taken in the back end, where demand is greater, than in November. The daily plot of energy illustrates this point:
Look at that chart – does it strike you as strange that the RFC could miss so far, so wide, so often on something that was obvious to everyone else. It’s like someone just flushed the Mid-C toilette and 10% of our water is gone. Well the toilette had been flushed last summer and now the shell game of stacking water in the back end appear to have ended, though we believe more cuts are to come. Check out the year on year plot:
Now this looks more reasonable, but I still have issues with the chart. At least 2015 is projected to be lower than the last three years, good job, but I don’t like the Nov/Dec shape. Look at past years, Dec over; look at this year, Nov over. If I was a betting man, and I once was, I’d say that the final shape will be Nov under Dec and all three months (Nov-Jan) cut another 500 aMW, maybe 1000 aMW in Nov.
That should make Mid-C go bid, in fact it already has from a heat rate perspective:
Wisely so, since this most recent STP is going to put additional upward pressure on Nov-Jan, probably on the whole curve.
Happy Trading,
Mike