Let’s examine the MidC today since the hub’s term has been the WECC’s most volatile over the past few weeks.
These are the strips we’ll examine, in period order.
BOM collapsed but only because Sumas crashed, note the heat rate is still below the one year average. Again, we see more downside than up given warming weather and increasing WEI pressure. A full return of Sumas inflows would put the BOM price in the 30-40s and the heat rate back to 10-12; not there yet, though much closer. Sell.
Prompt (Jan) is in a parallel downward trajectory yet, like BOM, retains Sumas premiums. The bet here is the pipe is restored or, equally relevant, WEI will jack flows whenever it is cold. Either way, Sumas should not command much of a premium. Sell.
Rolls, these seem as volatile as the underlying and an even safer way to trade. This roll, the Jan to Dec, is now approaching its one year average and nearly all of the Sumas fear premium has been extracted from the price. We were buyers of all these rolls off of returning WEI flows and diminishing (and short-lived) cold weather fears. Now the market is factoring in a much lower probability of another Dec cold snap (probably an incorrect assumption), and the roll is reasonably priced. If you got long this, I’d cover it and go flat. Since we’re still short both BOM and Prompt, we’d just liquidate that long roll position
Feb tanked, but not as much as Dec or Jan. I think the risk of blackouts in Feb is lower today than it was two weeks ago and most of the Sumas premium should be toast. After all, WEI has proven two things:
- The pipeline can deliver more gas – safely
- The regulators will let WEI push more gas if it’s cold
So what are the odds of a cold event hitting the Northwest and WEI not increasing flows? I’d say about zero unless the pipe blows up again. Sell.
This roll screamed up about $15.00 — on a roll — yet we’d suggest it is still cheap and would buy more of it. Buy.
Same as the Feb, the market has come off, but there is more room to fall. Sell as long as the weather outlooks are warm and wet, or the price approaches the yearly averages.
Feb is still commanding a $6.00 “Sumas” premium, and the odds of any premium are lower today than the recent past. Buy.
April is relatively expensive, but that has more to do with dry conditions than gas prices. Big wet can wipe out those premiums reasonably quickly and the market tends to move in sympathy with cash; if cash is bearish so shall the forwards. That said, we already sold the front and are running out of VaR – pass.
This roll, the April to March, is now fairly priced and we’d approach it from a pure hydro play. Given that, and an uncertain hydro outlook, we’ll pass.
Q2 is expensive, but why wouldn’t it be given that the water supply forecasts now sport 80 handles, and it is only Dec 6. However, should one of these storms land that 80 handle will become a 90 handle; should a second system land we’ll be back to normal. If I were a long genco, I’d be tempted to sell though the heat rate is just reasonably priced. If the storms land or I become confident they will hit, I’d sell, for now, I’d just pass.
The Two to One rallied as the fear of gas blackouts diminished. The roll is still cheap and buying it would be our preference, but given our front end short bias we don’t need this baggage in the book – pass.
Like the Q2, the three is richly priced on both Price and Heat Rate. Rightfully so, we might add. For now, it’s a dry year, and Socal didn’t fix anything.
The 3s premium to the two has grown, it has been growing since June. This roll is a combo gas play (Citygate) and water year. Both are bullish and at a price, I’d sell the roll, but not today.