Good Morning,
To recap the fundy blog, front neutral in the ISO, bullish at Mid-C and Palo. Days 4-10 are more bullish in the ISO and Palo, and Mid-C reverts to normal (i.e., bearish).
Outrights
September
Every hub is still trading at contract highs, we doubt fundamentals support those levels and would be comfortable selling into the crash everywhere, but more so at Mid-C than anywhere else.
NP off-peak remains very high, it hasn’t come off, and with mild weather (the 80s in sacto) we can’t see those levels staying for the entire month. The MidC came off enough to put it back in mid-range, and it’s probably more of a buy than a sell. At some point this month, nighttime loads are going to revert to heating, and the off peak will be more upward elastic to those declining temperatures.
October
The BOM mania never really spilled into Prompt; all hubs are up and probably a shade overpriced. If we had to pick an Oct to own it would be SP given the DC going offline, Santa Ana, and gas issues.
Not a lot of irrational exuberance taking place in the Prompt LL, aside from MidC starting to stick its ugly head up out of the swamp. The tight water there will keep the prompt LL from tanking, but if the trend continues, we’d be looking for a point to short it.
On|Off Spreads
Whoa, now there is some nice volatility; and every hub looks the same. The SP spread is still generous, maybe too much. The Mid-C seems overpriced, even after coming off and we’d sell that in a heartbeat, especially now that Wednesday already cleared.
October
Contract highs in the ISO and Palo, yet showing signs of being a bit top-heavy. Just the opposite at the Mid-C, there the product is trading near lows, and we’d be tempted to own some of that. Sure, the DC is derated, but with tight water, we don’t see BPA puking in the LL, more likely the hub just clears onpeak at 7k heat rates all of Oct and BPA cuts flows at night.
Monthly Rolls
Same trade, almost, as the On|off. The 170s, if divided by 24 trading days, works out to be about $7.00, which is exactly how much the roll bounced on Friday. Now we’d say most are priced fairly unless we see a return of the heat. The Mid-C seems over priced, however, and if we had to buy the roll anywhere, it would be there.
Both the ISO hubs are still at contract lows; we didn’t think that made sense last week and makes less so this week, not given the rapidly downward sloping Hydro Energy line. There will be a lot less hydro in Oct than Sep, maybe another 1000 MW less of off-peak. Palo and MidC are back to range, so the buys would have to be in the ISO.
November-October
They are all cheap, probably because of October’s proximity to September and the latter’s massively strong cash. We’d be fine owning any NP or specially Mid-C. The DC outage, as currently modeled, has an equal number of days off line in Nov and Oct but we know Nov’s loads will be higher.
Nothing looks overly odd, the ISO hubs reversed their blunders from a few weeks back, though NP seems a touch pricey and the MidC is now back to approaching contract lows.
Locational Spreads
Wow, the SP-PV got smoked, as we always felt it was overpriced. Maybe too cheap now, we’d be happy owning it at these levels. The spreads to MidC also got their arses kicked, and like PV, probably too much and would own those, too.
SP-PV LL is on the high side, now it seems to have found a top and would make a safe entry point from the short-side. The others aren’t worth wasting VAR.
October
The spreads to the MidC are high, but maybe not over-priced. Nothing is compelling.
Spreads to Mid-C off peak seems cheap, the other seem fair value.