Good Morning,
The cold is building, but so is the precip outlook, rendering mix signals on our longer term outlook. We like colder weather but positive precip anomalies make us question how much term length to carry. Before drawing hasty conclusions, and pay the fortunes crossing wide bid/asks, let’s first study the facts.
Fact One – the market sold off hard on Friday
We didn’t like DEC Friday morning, not because we feared the fundamentals, we didn’t like what you liked … the Dec had been bid up, we thought to levels a shade too high, now that you beat it down we can like it again….if the fundamentals concur.
Fact Two: The ISO prices don’t really suggest anything too crazy, the markets were pretty quiet over the weekend:
Both the SP and NP were off $4.00; the NP still commands the premium, but note the stability of each as reflected by the very slight variances between the HA and DA markets. There just weren’t any surprises over the last couple of days, nor were prices very high, but the cold hadn’t arrived, yet. It is coming, and it is growing …
Weather Forecasts
The composite hub temperatures are mostly unchanged, except for Mid-C:
These reflect the next ten days and are weighted off of demand for all cities within the hub … note the Mid_C is off five degrees from a week a go, and off almost two degrees from yesterday. Everywhere else is either unchanged (from yesterday) or is warmer.
Mid-C Composite Temperatures & Precip
Apologies in advance if we dwell too much on the Mid-C in this post, but it is the only hub that is experiencing the greatest material AND fundamental changes, though NP is not too far behind, as we will see shortly.
Fact Three: The cold has grown colder, the composite Mid-C lows are now 22 degrees for tomorrow -these were in the high 20s going out last week. That is the good news for the bulls, the bad news for the back-end bulls is the rally in the precip outlook, the hub is poised to see big anomalies this week:
Fact Four: On Friday we saw less than an inch, today it is 1.13 inches, not a lot (recall in October the composite was north of three inches on many days), but all of that is coming down as snow ..more on that later. Also worthy of mention are the three inches heading towards northern California …that will dump a lot of snow in the Sierras. But yet we digress, once again, and wish to return to temperature. Let’s examine Portland, OR:
The cold really isn’t that cold, a low of 27 for tomorrow, but note the confirmed cold next week, on Thursday; same temperature, 27, and Friday’s forecast called for exactly the same. Also note the big precip heading Portland’s way later this week, and more behind that. This is what bothers us about our Q1, and 2, length at Mid-C. We like to see dry if we are long, we get nervous seeing wet.
Wet and warmer, the hub has turned a shade more bearish, or less bullish if you prefer, given a warmer and wetter outlook.
Not Donneresque in quantity but it might end up being the biggest storm of WY17 with its four inches of precip, all coming down white north of five thousand feet; below that it will be rain and the hub will realize an increase in hydro energy, nothing is even close to hydraulic capacity:
Warmer weather, wetter weather, is bearish no matter how you slice and dice it …the cup isn’t half full, it’s three-quarters empty.
Fact Five: What can you say here; the weather is warmer than it was on Friday and every day is above normal. Bearish ….
Looks like Burbank and our takeaway is the same … Bearish. Loads (actuals, week on week) are bullish, every hub is up, or unchanged:
Our Wednesday post should be fun, we expect the Mid-C to be up 4000 MW; these load changes are reflect just really weak loads last week, though it was cooler yesterday, but nothing like what we’ll see in the next couple of days.
Hydro
We know California is going to get soaked, that hub will realize almost three times as much precip as the northwest. Let’s take a look at the city forecasts:
This table was sorted descending, on Current (CUR) cumulative ten-day precip. You could have almost sorted the table on latitude, ascending, and ended up with the same order. Portland gets almost twice as much precip as Seattle (good, I live in the latter), clearly this is a storm whose center favors the southerly latitudes, but not too far south, Burbank gets zippo. Note also the inch or so that Spokane, Boise, and Kalispel will receive …and all of that will come down via frozen water molecules.
And the whole west received a decent amount of snow already, over the weekend:
Mid-C Basins
Fact Six: Almost every basin rallied 10% … in a single day! That speaks to both the amount of snow that fell AND how early we are in the water year. That same amount of snow in February would be lucky to move the needle 1%, which is why one should be cautious about big positions in Q1 and Q2 – that are water supply driven. Way too early to bet the farm, even if the farm is owned with OPM (Other People’s Money).
Whatever snow came down over the weekend didn’t come down outside of the northwest – several CA basins realized drops (again, speaks to how green WY17 is on Dec 5). All of that will change by this weekend … guessing every CA basin will be above normal by then.
Fact Seven: Arrow finally woke up; discharge is up 400% from last week …. most likely running hard to serve BC’s own loads. Regardless of why, there is an additinal 27kcfs of discharge, all of that incremental water is heading towards Coulee rendering the Mid-C a lot more bearish.
Sideflows
These stations are mostly unregulated and are a collection of smaller rivers that dump into either the Snake or Columbia. We use them to track natural river flows and all five indexes are off, week on week, and are now back to normal whereas they have been well above normal for the last two months. Call it bullish, or just call it winter – most precip is now coming down as snow.
Mid-C Rivers
Coulee is up from increased inflows from Canada and BPA generating to serve load. The silver lining here is the declining reservoirs, though those are still at five year highs.
Generation
Fact Eight: The ISO has some new outages, in total there are nearly 3000 MW more units off line today than last week:
New Outages
Recently Returned Units
Anytime you have more units fall offline than return it is bullish, but is it bullish enough to make a difference? Doubt it, neither hub (NP or SP) is even close to stressing out their systems, it is just not cold enough, and the Mid-C continues to export:
The line almost filled over the weekend, apparently the FTR owners like the ISO price more than their native numbers. The DC is not near as full (% wise):
So they liked the SP price even less; look how much unused capacity was on the line. We think a lot of that capacity was BC’s:
Fact Nine: They were net buyers yesterday, for seveal hours. That should suggest how cold, how much new load, there is in British Columbia. Apparently, between relatively weak prices, decent domestic loads, and the expectation of big prices today and tomorrow was enough for BCH to buy. We see this is bearish for the next couple of days …if the Canadians decide to resume selling. Maybe the DC can absorb another 500-1000; the AC can’t take on anymore, leaving any incremental BCH selling stuck in the Mid-C, quashing prices, smothering hopes for the longs.
Before moving on to our conclusions, let’s look at the Ansergy Gas Demand Indexes:
All hubs are up, week on week, and should really soar on Tuesday. This is putting pressure on storage, the draws are growing:
And prices are rallying:
Conclusions
- BOM
- Mid-C
- Big selloff on Friday, maybe too much, though the market is still over the forecast. We left things short the on/off (long off, short on) and will keep that position
- Dec On Off
- The spread is wide, we see water being relatively tight and expect big off peak loads; doubt we see this clear at $8.00 …SHORT the on/off
- Dec On Off
- NP
- We sold our length (on peak) Friday and were flat, but laid on a few pieces of the off, which sold off a small amount. We’ll keep that off peak length going into perhaps the coldest two days of 2016-17.
- SP
- There is nothing to like here or at PV, but we don’t have much length to hedge and will be flat at both
- Mid-C
- Q1
- Mid-C
- The length here hasn’t fared poorly but we like buying off of dry, now its wet, and like the trade less as a consequence, but bid/asks are steep and like the cold the northwest must manage over the next couple of days and will consequently stay long. Though, if we see strong Feb-Mar bids we’d break the Q up and be long the Jan and flat to short the back.
- Q2 – will stay long, though we’d rather see another dry week, but the fact remains that snow levels are below normal, and now we are in Dec, and now snow levels start to matter. We’ll watch and see how things play out but are getting close to liquidating this long position; if the market rallies all things Mid-C off of tight cash prices we’ll be one of the first sellers; if precip builds over the week we will be one of the first sellers; if cash doesn’t move and precip builds, we will be one of the first sellers… otherwise, we are bullish because we are long, and that’s a fact.
- Mid-C