Good Morning,
We are amidst a torrid MidC bull run, no one can or should dispute that, and a more modest bullish turn for the other three traded WECC hubs. Ansergy called a long sentiment on March 1, much to the consternation and angst of those that had the opposite sentiment; perhaps now is an opportune time to see how that call has played out:
Ignoring periods, the change from March 1 to May 5:
At the time we said something like go long and come back on July 1; actually we said: “One of the challenges in trading runoff is timing, but this year, after the market has pummeled a 120 day strip so dramatically, you can forget about timing and just go long all of Q2 and come back on July 1 and collect your bonus.“
The April was a train wreck but the May-July has been that fiscal year defining trade, the one that will pay your bonus next March, but the point of this post is to ask the question “when is enough enough?” Or put another way “are you a pig to stay long and will you soon get slaughtered for your piggish ways?” We think its time to start thinking about taking profits and perhaps it is time to take them.
Opportunity is as much defined by the market price as the fundamentals and the market price is up, way up from March. Not to say it can’t go up more, but now the probability of sideways to down is greater than it has been in the last 60 days. Let’s look at prompt month heat rates:
Both deltas are now negative (forecast over market) whereas they were positive for much of the last 60 days. PV cash is going to get murdered over the weekend off of highs in the low 70s and a weakening ISO. We’d be out of any prompt PV length and would even short it.
The model still likes the SP, relative to the other hubs, but we fear the affect of the cooling weather and more generation returning and would only be cautiously long, but like flat more. We think flat is a good thing and believe a book should be reset to zero many times throughout the year and now is a good time to take a real long Memorial Day weekend.
NP has moved the least (of the four hubs) over the last 60 days and we think its fairly priced today so why would you needlessly chew up your Risk Manager’s precious VaR? Give him a break and flatten this out and wait for hints of some real CA weather.
Yeah, we saved the best for last because we’ve been criticized for being too MidC focused, but then what other hub had a 126% move in 60 days? None, MidC is the crack cocaine of power hubs and you had better keep your pipe in your pocket, fully loaded, because this hub is always full of surprises, and they aren’t always good ones, either.
So how could we put out a short call on June Mid-C? Well, we can’t, at best we can just say take profits and start your Fourth of July holiday a bit earlier than usual. $3.00 Mid-C May light load was stupid, so was $7.00 June, but $17.00 June light load is not stupid, it might even be rich. There is still snow to melt, albeit not as much as on March 1; the Canadians have warehouses (aka reservoirs) stocked with fully loaded magazines and are ready to spray 2000 MW bullets at any hour that dares to show hints of bullishness; lots of MidC outages are fast tracking to return; and BPA won’t be dispatching any wind the rest of the spring, instead they’ll be using those blustery days to get Coulee full; and finally, and not to be forgotten, the ISO is loaded with renewables and has fullish reservoirs, something they haven’t had for the last few years.
In sum, we like smaller booked out gains more than larger MTM paper gains and we’d do a reset today and realize a portion of those gains. Watch and wait, there will be moments where the fundamentals realign, or the market blunders again, and you can get jump back in. And, if there are no realignments or blunders, your pain will arise not from your bosses having closed door meetings over your book but from sheer and utter boredom.
Today’s Fundamentals
Weather down south is down right chilly, take Phoenix as a case in point, where tomorrow will be nearly 20 degrees below normal:
Palo’s peak loads are already dropping and won’t stop until they hit the low 9ks.
The ISO is shedding load too; NP is off 1200 MW from the highs on Monday.
Even MidC can’t keep its Monday “highs”, but that hub’s issue is the loss of heating load and no one in the northwest is willing to turn on an air conditioner in May, it’s just not the way we do things up here.
The River Forecast Center is tossing the bulls a bone in its 10 day:
Actually, it is more of a kibble than a full sized bone, but nonetheless it is an 800 aMW cut on the 13th, from last Monday’s STP, which foretells a bullish BOM STP this coming Monday. We think the cuts are arising from a sluggish river reaction to this latest 80 degree weather – the rivers didn’t move up that much, more dropped week on week than went up, resulting in the RFC lowering its forecasts.
Yellow is down, white is up, and there is more yellow in that table than white, which is surprising given the 10-20 degree positive temperature anomalies at Kalispell and Spokane and Boise. The culprit is the low-elevation snow is gone, the snow that is sub-5k; now what is left, and there is a lot left up high, is tougher to melt and will continue to feed the rivers well into June. The Ansergy Sideflow index reinforces that sentiment:
Despite this being the third wave of 80+ temperatures the Cascades continue to cough up more water and there is still more to cough up – we did a drive by yesterday and the upper Cascades are still blanketed in snow. We also see some big wind heading the MidC’s way, and it won’t be a gust but a sustained event lasting nearly two full days:
That’s all we’ve got to tell, sorry its not black and white, but it never is. All you can do is follow your gut and our gut says time to Reset and enjoy the family and a flat book.
