Good Morning,

Our takeaway from this morning’s walk down Fundamental Lane is:

• Demand – bullish
  • Northwest – bullish for the next seven days
  • California
    • NP – quite bullish
    • SP – moderately bullish
  • Palo Verde
    • very bullish
• Hydro
  • Northwest – very bullish
  • California – very bearish
• Generation
  • Northwest – very bullish
  • California – moderately bullish
  • Palo – very bullish

In other words, we don’t see much to curb our enthusiasm for owning BOM energy, fundamentally, but that is just half (maybe less) of the equation. The remainder is what Mr. Market has done …

Outrights

August HL

The market has sold hard off of last week’s highs rendering some relatively safe entry points. Before making any calls, we’d prefer looking at the derivatives.

SP off peak is on a roll and given last week’s strange spot gas market we’d be nervous about fading that roll:

On rare occasions Socal trades over PG&E, it did on both Thursday and Friday. Usually, these are short-term aberrations, but when it does, havoc is wreaked on the NP|SP spreads.

Septemeber HL

Barely a move rendering a rally in the Prompt: BOM rolls.

Septemeber LL

Similar story in the off peak, though most markets are off slightly. We like the tightening of off peak in both CA and the PNW, but don’t like the end of Spill at MidC.  Move to the Rolls for further insight…

Rolls

Prompt|BOM HL

The roll is the mirror of the outright; as the outright tanked later in the week the roll rallied. We’d like to add to BOM length and will use the roll for that purpose:

Palo – sell two pieces of the roll: Buy PV HL BOM, Sell PV HL Sep

The Ansergy forecast is struggling to keep the lights on in Aug MidC, we are working on a fix there, but we still see the hub squeaky tight and would add to length via the roll.

MidC – sell two pieces of the roll: Buy MidC HL BOM, Sell MidC HL Sep

California has the water issues but has new outages; let’s look to the other derivs…

Prompt|BOM Rolls LL

We still like the MidC off peak in BOM, and the Sep hasn’t moved rendering the roll cheaper (from the BOM side):

Buy a piece of MidC LL roll: Buy Aug MidC LL, Sell Sep MidC LL

Spreads

August HL

The SP|PV hasn’t moved much and we see new heat in Phoenix:

Buy Palo BOM HL, Sell SP15 BOM HL

We’ll stay away from the NP|SP until the gas market works through its issues. We also will avoid the SP|MC since we don’t believe our forecast and it doesn’t get that hot in Portland, plus we see an ocean of water in Canada.

August LL

We like the NP|MidC, more off water than anything else.

Buy MidC Aug LL, Sell NP Aug LL

Sep HL

All the spreads are blowing out except NP|SP which is both a water and gas issue.

Short NP15 Sep HL, Buy MidC Sep HL

we did it at NP, no need to do it at SP, plus we fear SP Santa Anas and this gas market has us spooked.

Sep LL

No trades.

On|Off

August

Palo gets hot, the On|Off got cheap …

Buy BOM PV HL, Sell BOM PV LL (2 pieces)

NP on|off is in free fall and the hydro energy more or less supports a decline given that off peak water is dropping faster than on, however loads are still strong and there are new outages

Buy BOM NP15 HL, Sell BOM NP15 LL 

September

No trades