APT – Front

Posted on by William Griswold

Good Morning, again.

Admin Note:

I am leaning towards splitting the market commentary from the fundamental review. We know many of our clients don’t read the market stuff and splitting will allow for an earlier fundamental release. Going forward, if you’d like to receive the APT stuff you’ll need to reach out to Garrett. Otherwise, you’ll be getting just the four fundy updates, plus the STP, each week.

And, as a reminder, on Monday’s I’ll do the front, and Wednesday’s the back. If something material changes intra-week I’ll try to do a front update. The front is defined as BOM + Prompt; the back is everything else. I call both APT, but only the back will use the APT model calls.

Outrights

We are always reluctant to take outright positions; we believe you can get almost to the same place by layering in strategic derivatives and avoid a lot of Nymex exposure. Still, it is always worth looking at the outright plots:

BOM

The ISO is screaming up, but what is most notable about this plot is the MidC forecast; once it dropped the 100s into Portland, the model broke on many early Aug hours. We don’t have an outright rec, other than don’t be short MidC this week.

The LL rally lags in the ISO, as it should, we already talked about the hydro overhang. Our MidC forecast for LL also broke, there just wasn’t enough water to pass around. We like the delta and think the LL is a cheap way to buy a call this week, so…

  • MidC Aug LL – long two pieces

Prompt

Interesting that Palo hasn’t taken the hits in prompt, not like it did in BOM, but that’s  because BOM got bid up off of July’s nuttiness. The ISO has strolled upwards, even the MidC a bit. We like buying prompt in front of strong cash, so we’ll add a piece to our MidC stash:

  • MidC Sep HL, buy one piece

Outrights – Prompt Month

The market has grown weary of ISO LL, both SP and NP are off, though the latter more than the former. Our forecast doesn’t like any of them, only Palo is at parity, but like the HL, we’d be tempted to take on a piece of the MidC LL in front of cash; if we get no love by Friday, we will roll it out.

  • MidC Sep LL, buy one piece

Spreads

The market hates the SP|PV, while the model just yawns. We’d suggest that PV has hidden strength from a couple of sources:

  • Transmission – the line to SP isn’t full:
    • Wierd cuts this weekend, but the average loading is about 1500 aMW from full (over last two weeks). Until that line approaches capacity, we struggle to see how the spread clears at $10.00. The downside of shorting at these levels seems minimal.
  • Nevada weather is bullish, recall the strong LV temps. Offsetting that are the weak forecast loads in the Rockies. Shorting the spread is not a “no brainer, ” but we still like it

SP|PV Aug – short one piece

The NP|SP length we’ve held got paid, we’ll hang on to it through this week as we expect cuts on the AC. The model has destroyed the SP|MC, and we concur and will short a piece of that.

SP|MC August – short one piece

BOM LL Spreads

The SP|PV LL is trading like the HL, not sure we agree; the model does not. Bear in mind, as the PV HL backs off so does the min-run LL energy at PV, though the loads are not as responsive and CA still has record off peak hydro.

  • SP|PV Aug LL – sell one piece
  • SP|MC Aug LL – sell two pieces; things should get squeaky tight at MidC this week, we want to be in that game

Spreads – Sep

The SPPV is near a contract high, having just come off from that. The spread is trading as if the line is full and the PV can’t back off any generation, but it can, plus a nuke is scheduled to come off in Sep. But, we already put it on in BOM, so we’re ignoring. The SP|MC has traded the same as the SP|PV, and we know (or are confident) that the MidC reservoirs are going to take a pounding this week.

  • SP|MC Sep – Short one piece

Spreads – Sep LL

Contract highs for the SP|PV LL, the rest seem fairly priced; but we already put this on for BOM, not interested in a double down.

Rolls

Talk about volatility, the market loves the BOM more than the Prompt, as well it should, but is this a case of too much love? We doubt it, these falling knives will fall harder, but later in the week, after we see the damage done in cash, we’d be tempted to jump on these by buying the Sep and selling the BOM, but not today.

Roll – LL

The NP LL roll has collapsed, but Aug will have more water than Sep, but it’s a falling knife and only grab it if wearing thick gloves, we got those on and will put this on…

Sep|Aug NP LL roll – buy one piece (buy sep, sell aug).

The model has destroyed the MidC roll because it ran out of bom energy. We think the model over did it, but we believe it does act as a fair barometer of probabilities, so we’ll do just the opposite of NP and.

Sep|Aug MidC LL roll – sell two pieces

On|Off

Until the ISO starts backing down its off peak hydro we’d avoid shorting; the ISO hasn’t backed off enough (800 aMW lower than a few weeks back) and with impending heat and the Northwest probably going into “bogart mode” we fear shorting the HL.

No positions

OnOff Sep

If cash HL blows out this week these spreads will get higher, we wouldn’t short today and already got net long BOM, so no trades.