Good Morning,
The 120 day update arrived last night with a hint of bullishness:
All good, right? Me thinks not for a couple of reasons, but first let’s examine these months in prior years:
Now here is the conundrum – the RFC’s is projecting WY15 to exceed WY16 for the Jan-Apr strip but that same agency is telling a different tale in its water supply forecast:
The most recent TDA, Jan-Jul, is 103% while the same day last year it was projected at 100%. Go back and look at the year on year forecast – every month of WY16 is less, materially less, than WY15. Either the RFC is projecting a very cold spring and consequentially a delayed runoff (2008 like) or it has its STP forecast wrong. I’ll suggest the latter and believe there are 2 gigs of missing water in today’s forecast, at least for Jan-Mar.
One possible explanation might be found in the most recent SOR regarding Libby flood control draft. In those minutes the feds felt, given a strong El Nino, that flood control drafts could, should, and would be mitigated. Since El Nino always brings droughts why bother dumping the water in Feb-Mar when you’ll need it in May-June? So far that thinking has been just wrong, this is not a dry year and those flood control drafts may yet be needed.
Current weather forecasts remain cold for the northwest though it is a short-lived event:
And there is a touch more precip than was forecasted last week. There is also a decent amount of renewables (actuals) especially in the light load:
Though with a high pressure system blocking the storm track that wind-driven generation will taper off dramatically next week. So what’s a trader to do, at least in the front? We’d be inclined to cover our shorts (if you still have any, and if you do, shame on you) and be thinking of going long.
Our thoughts yesterday are the same as today and we liked the length then and like it today, maybe more so, given that the market has bounced off its lows. I’d own either but, given that cash is heading for a bullish spell, albeit short-lived, the Jan should rally harder. The problem with picking one or the other is that the rally will jack both. For the record, most of that price spike (forecast at least) is from natty.
Alternatively, go long Mid-C by selling the spread at $8.50:
That spread (Market minus Forecast) is at stupid levels; levels based upon the Mid-C December flood-driven cash markets. You really are going to price in a 3 std dev event for all of Jan? Really?
Wait, stop, you scream. Didn’t Ansergy just say, a few paragraphs above, that the RFC is missing 2 gigs of STP water in Jan-Feb? Isn’t that bearish and aren’t we talking out of both sides of our mouth? Yes we did but Ansergy is not missing that water, you are; it’s baked into those forecast values you see rallying in the charts above. If we used the fantasy STP values in our forecast we’d be laughed out of the market.
Mike