Chop

Good Morning,

Choppy outlook, fundamentally, that is. The Northwest turns cool, California a shade warmer, and the Interior holds its own. ISO gas outages approach record lows and the MidC baseloads its southbound exports. A final summary point, discharge at Coulee rallied hard over the last day, perhaps the exports and that plant’s generation are one and the same, the plant certainly didn’t rally off of incremental MidC loads, those dropped.

There are no upward pointing arrows, try as you might find one; all point down, loads are off week-on-week. The silver lining in that cloud is the probability of going up when something is down is higher than when it’s up. Small comfort, but the forward-looking weather forecasts suggest some hub’s demands will be tumbling yet further. Before looking at those, let’s recap the temperatures.

Not hard to see why loads are off given Phoenix falling eight degrees and the CA load centers mired in the 80s. The Northwest has a new HVAC system – it’s called a screen door.

The temperature outlook in the Northwest is dismal for the next week. Opening day of the salmon season is on the 16th and you’ll need to pull out your snowmobile suits. There is light, it’s just the flicker of a candle, at the end of the tunnel – temps rally a touch off of normal. There is nothing in those plots to warrant exuberance, let alone irrational excitement.

The Golden State shows some gold over the weekend with Burbank’s mid-90s, then it’s a slog back to climo across the state. Let’s hope the WX forecasters are as bad as they usually are, then maybe there is hope for another heat wave. As it stands now, you may as well shut down your trading desk and take the summer off.

Phoenix is back to normal and that is not normal; normal is anormal but anormal appears anomalous, going forward. which is abysmal. One oddity in the above is the surge in temperatures in Las Vegas out two weeks – huh? A one day blip that is not replicated in Phoenix – don’t bank on it.

The only reason this set of plots is showing up is to set the WY17 full reservoir demarcation. Coulee actually drafted a bit, the rest of the projects are full, maybe Libby has a bit more room.

Perhaps that mini-draft explains the surge in GCL discharge yesterday? All the other projects are trending down as they have been for the last three weeks.

Busy dashboard, the reason it is here is to point out how almost every non-Corps project is below normal. The Spokane is so low you have to raft it in a hover craft.

The River Forecast Center sees the same thing, they are backing off across the ten day. We still think there are more cuts to come, especially in the back-end of summer:

Sep to Nov are all five-year highs, but snow and reservoir levels don’t support that forecast, which is why we are inclined to think the RFC will steadily walk down its 120-day forecasts.

The AC and DC are baseloaded, very little hourly volatility, or daily for that matter. BC still sells at any bid and the ZP zone is mostly flowing northbound reflective of a weakening ISO.

Noms, on the other hand, are suggesting a very bullish market. You can take that two ways. The “glass half empty” guys and gals will read that chart and say the system is over-generating and with declining demand prices will quickly tank. We are in that camp. The myopic “glass is over-flowing even though its half full” group will say “see, it’s bullish because I’m long”.

You can play the same game with the ISO outages:

Total gas outages are at a CY low, just how low are they historically?

Well, there have been about two hands worth of days that were lower in the last 1400 days. Glass Half Fullers – it can only go up from here. Glass Half Emptiers – damn, its bearish. We lean towards the former.

Conclusions

Monthly APT

The top outright, per the model, is buying the MidC BOM LL:

It is still relatively cheap given the water outlook, it was cheaper a week ago, but the downside to the trade is potentially weaker cash for the next couple of days and an aggressive northern neighbor. Since the lines are full in the LL hours if CA cools down (and it is) will their desire for off-peak temper as well? Offsetting that scenario is BCH’s abiltiy to swing 2000 MW in the off peak.

LONG – MidC LL BOM

Moving over to the rolls, the top one there is the PV Dec-Nov (sorry, we know you probably can’t trade it, but let’s look anyways):

Not sure if the Marks are whacked, but this is a very compelling buy. The market has just tanked, and now is starting a recovery while the forecast has not budged.

Spreads

We’ll ignore the PV-MidC and look at the next one, SP-MC LL for sep:

Hit a contract high around the same day that cash hit a high – like a June day should have any impact on September. Water will tighten in both hubs and CA is notoriously hot in Sept while the NW is often not hot. That said, we’d short this spread because it is over-priced and we think NW water gets walked down over the next several weeks.

OnOFf

Funky chart, massive market rally in the on|off and a pullback, we think it is over-priced if the state returns to normal temperatures, which it appears is going to take place. One worry is the CA off peak hydro, that has been off the charts this year but at some point the state will start husbanding its scarcest resource (water) and will shed 2000 MW of LL hydro energy.

Quarters

Outrights

The model picked shorting the Q2 NP HL as its favorite:

Approaching a contract high, now it’s range bound. We’d be comfortable putting this on, though would want to look at all the other outrights first. A caution would be strong cash but we don’t see that.

Rolls

This roll, the Q318 to Q218, was dirt cheap a week ago, now it’s just cheap. Not over compelling but any strength in cash this summer will make the Q318 pop so it plays like a virtual call option that will pay in any future SP Q3 rally. We think we’ll see those as summer progresses so do like this trade. Bear in mind, too, that most of the 2017 bearishness in Q3 is hydro-related; the ISO is at least 1000 aMW higher in HL this year than any of the last five and that most likely won’t happen again for several years.

Spreads

APT picked this one as #1 because it’s at a contract high and can’t move off of that value. MidC had one of the most bearish Q2’s in recent memory, odds of that happening again are slim.

On:Off

Contract high, aside from the Carbon Tax Abortion. CY 17 Q2 LL was as low as you’ll ever see, driven to that sorry state by the massive low-level snow and accelerated drafts for drumgate work. Don’t expect next year’s LL to clear at $3.00, we’d fade this market blunder.