Good Morning,
Lots of bearish items to talk about this morning, the market sees the same and has pounded down everything which is making us increasingly longing to go long, though not sure we are just ready to make that call, but we are definitely thinking about it. When the market turns (gas and power) we suspect a violent turn, big profits for the brave of heart, but timing that turn will be challenging; for now, nothing looks good. If you were sailing in these waters you’d be advised to head to port, pronto.
Markets
Spot gas was destroyed on Friday, all of last summer’s gain that drove a collective sigh of relief in the E&P sector has been chased away with a universal “not again!”
These are 20-30% drops, in a day, and now prices are over a dollar lower than last year in some California hubs, the rest are $0.90 lower. Is that the bottom? Probably not, without east coast cold there is nothing to support Nymex, even if it was cold in the west, which it isn’t, though it is defintely cooler that it was last week. One major eastern seaboard cold front will drive huge rallies
Spot power suffered as a result of the suffering in spot gas:
Reminds one of a rave – teens everywhere. Shocking to see NP settle with an $18 handle, shocking. But the LMP markets don’t seem to exist on the same planet, there we saw the DA LMP market soar:
Soar as in up $30/mwh, week on week, at least at SP. The rest of the nodes realized big congestion in yesterday’s market:
$25.00 of congestion between SP and NP, and look at the weak Palo prices nearly all day. Let’s examine the hubs and see if there are any signs of life.
Palo Verde
No signs of life at Palo, peak loads slipped 1400 MW, week on week, and now current year is back in line with last year. All of this suggests that Palo has almost reached its bottom, load-wise, but the hub still needs to shed some cooling degree days before that happens:
Phoenix remains ten degrees above normal for most of this week, though by Thursday the sun-drenched city will be five degrees below normal – let’s call that day the load bottom. it will also, probably, be the gas nom bottom as well:
We noted the Mesquite node is mostly off-line, it’s noms are 170k lower than last week. I guess prices in the teens makes for a good time to squeeze in that maintenance all of which suggests the hub has little heat rate downside and lots of price downside given the no-man’s land nature of gas at the moment.
Ugly chart, both the forecast and the market are in parallel Bataan-like death marches but how low can they go? Lower, if gas goes lower, but we’d still be tempted to toss out a bid, but won’t. We think Dec may be a better place for length:
Note how the market already started its rally here after over-selling on the 7th and 8th, then rebounding $0.50 and is now at parity with the forecast. Before tying up our Var in a possible no-win trade, let’s see what’s cooking in the other hubs.
SP15
Loads at SP, week on week, were up 900 MW and remain above last year’s levels.
Doubt that trend continues through this week, look at the huge anomalies realized last week over last year, then look at the weather outlook:
Burbank temperatures are poised to fall off a cliff like Phoenix, and loads will follow them down. Outages are also falling off a cliff, the ISO is off 2000 MW over the last week:
Most of those haircuts are in NP, in fact SP is 200 MW higher than last week, but one shouldn’t expect much incremental change in outages going forward; the peak is typically right now, right before winter loads start rallying.
SP Gas noms are off, just like PV:
Off week on week and off year on year. Yet there is nothing in the SP outlook, fundamentally, that makes it a compelling buy; one has to look towards technicals to find that:
Technically, this chart is bearish, there is no separation between the forecast and the market, both are sliding ever downwards, but we know every non-equity market has a bottom, perhaps SP has; it found a bottom in the Dec:
Now it is trading at a premium to the forecast and the bom/dec is starting to blow out:
It last reached these heights ($8.00) on October 25 then proceeded to death sprial to a silly $3.30, now it is back to $7.10. Fundamentally (that is the blue line, btw) not much has changed which leads us to prefer owning bom over dec and we’ll happily collect that $7.10.
Mid-Columbia
Loads are doing nothing at the hub, how can they when temperatures are so far above normal?
But that is going to change this week, for a few days, then back to positive anomalies, though those temperatures will be below the highs realized today and tomorrow. With those sliding temperatures comes the chance for snow, there was no chance when it was dry, there was no chance when it was wet and warm, now it is normal and kind of wet.
The hub, weighted on production, is now above normal in its 10-day outlook, though much lower than yesterday’s wild forecast which projected 1.5″ over that same 10 day period. The RFC is picking up on this, their 10 day is off the charts:
The next five days, as of the Friday forecast, are up 800 aMW over last Monday’s STP. Given a wetter outlook today than Friday, we expect today’s 10-day to be even more bearish and this afternoon’s STP will reflect more water and more energy. That washes away any hope for a BOM rally, we needed the hub to stay dry and it’s not, it’s wet, though the longer term water supply outlook is creeping down:
TDA is now below normal and Coulee came off 2% from last week, but don’t bank on that trend continuing for long – those cooler temperatures and above normal precip are certain to jack snow pack, and it needs it:
There isn’t any, anywhere except in Glacier, MT, the only station on the map with a positive anomaly. Amazing that the RFC still has GCL above normal.
The hub’s gas noms are nearly 50% lower than last year:
But on a more positive note the rivers are starting to back down:
Every station but one is lower and that one is due to regulation, BPA is pulling Libby down because it was too full. Just a few more weeks of dry and the Mid-C might have become a raging buy, but alas, it is growing wetter.
Like the other hubs, the market and forecast are in concurrence on forward looking value for BOM; that is usually a bullish signal for us, but before we lift any bom offers let’s examine Dec:
The market remains below the forecast but has rallied and the gap is neglibile. What about the roll?
Looks like the dec plot and suggests a buy. How does Mid-C compare to SP?
The market over-sold this spread and has now come to its senses, it is fairly priced – coin toss whether to go long or short; what about Dec?
Market has over-bought the Dec, in our opinion, and now we have our trades for the day.
Conclusions
- BOM
- Mid-C
- SHORT – big water coming, off-set by cooling temperatures, but we expect a bearish STP and a bearish 10 day, today.
- SP
- Long – loads will come off but most of that will be absorbed by outages; given no cold weather anywhere there is little upside except via the dec-bom derivative, and we are going to short that ….
- Palo
- Flat – we like it because it is cheap but it is cheap because gas is cheap; if we bought anything it would be gas, but we aren’t buying gas
- Mid-C
- Dec
- Mid-C
- Long – Nov doesn’t look like it has much of a chance of cold weather and we are confident it is about to get drenched in rain/snow; we’ll be long the roll
- SP15
- Short – No real strong opinion, but we are going to sell the spread making ourselves short here and long at Mid-C
- Palo – no opinion.
- Mid-C