Good Morning,
To recap the fundy blog, the MidC is butt-ugly, Kally is neutral, and Palo is still a bull, but the vet has the knife out and is ready to render it a cow.
Outrights
No surprises here, the market puked about the right value given that cash trading in the 150s for a day or two. Now everything seems priced reasonable, but let’s look towards the derivs before making that call. One other point, given that nearly every hub is at Climo or below, and these levels are about at the average for the contracts, there may be more downside coming — as the system finds itself flush and everyone is trying to sell to the ISO.
Sept Off Peak
Palo is at a contract low; we think that is too cheap, especially if the gas units start backing off at night, which we saw with Griffith. Plus there is a PV nuke scheduled to come down within a month or so. If anything, we believe most of these LLs are cheap, now.
Oct On Peak
In sympathy, all the Oct heat rates have come off. Well, it’s not dumb to come off contract highs, it was a faux pas to ever rally the Oct off of Sep (or Aug) cash. Now the market is pretty much at parity but will be hard to reverse the new trend … down.
Oct Off Peak
MidC off peak has sold hardest, not sure we agree, except for the fact it also rallied, which it shouldn’t have. Nothing is compelling, from either side.
On|Off Spreads
Just a reversion to means, the spread proxied as a long call against cash, now that those hot summer days are a thing of the past, the call has lost its luster.
Oct
Again, blunder reversals in the southern hubs, the MidC fell way too far and quickly snapped back. The Palo still seems rich and the MidC a shade cheap.
Rolls
Same as the On|Off, the Prompt|BOM roll was just a call against spikes driven off of excessive heat, now that the WECC world is back to normal so are the rolls.
Oct-Sep LL
This chart highlights one of our challenges with tight Sept water in the forecast. It doesn’t take much of a cut in flows to drive prices; we saw that in how Sunday traded (LL over). The model is struggling to manage the first two weeks of Oct MidC when water is tight, and the DC is flowing 3k to LDWP:
Even a 1000 MW change (supply or demand) drive the model nuts, which is why we see those forecast spikes. Owning Oct, at the right price, might not be bad play since the DC doesn’t go down til mid-month.
Nov-Oct HL Roll
All the hubs bounced off of contract lows because Oct got over-bid off of strong Aug/early Sep cash. The NP and MidC still seem cheap, and the SP seems rich, to us. SP has a very good chance of seeing a return to the high 90s, maybe even 100s in the LA Basin. The Northwest has next to no chance of very cold in the first few weeks of Oct, but a good chance in Nov. We’d be inclined to own both the MidC and NP and short the SP.
Nov-Oct LL
NP was stupid-high, now it’s just high and not worthy of wasting VAR. The others are also fairly priced.
Spreads
SP-PV has gotten sick cheap, and we’d own that, even though Phoenix is still hot. Mainly because it is cheap, and the ISO always finds a way to get weird. We’d also own the “to MidC’s” because they are relatively cheap and the Northwest is entering load-decay hell.
Sep Off Peak
Spread at SP-PV is contract high making it safe to short, the others are at par.
Oct HL
The spreads into MidC are still rich but have come off, and we’d be more inclined to buy them, but would want to see some hints of Santa Ana.
Oct LL
The NP-SP has rallied hard, now it feels more like a short than an “own”; the SP-MidC also rallied but we’d wait to short, MidC may have more pain this week.