Market Commentary

Good Morning,

As expected the NWRFC made but minor adjustments to its 120 day forecast, released yesterday:

The daily plot emphasizes the stability of the week on week forecasts:

Weather outlook is relatively unchanged, mild northwest temperatures on the west side and near normal precipitation across the hub:

California, on the other hand, is enjoying torrential rains and possible flooding across the golden state.  Check out the Donneresque-like precip at Lake Tahoe:

That should be good for a 2-3 feet of snow at Heavenly, though much will come down cement-like.  If you are looking for the good stuff go a few hundred miles east, to SLC, where you will find epic ski days:

The Cal reservoirs remain much below normal, forget about full, despite the plethora of wet days in Cally.  The CVP is barely generating as most of the inflows are held back for other purposes.  The run of the river plants, and there are many there, will be running at capacity, something not seen for awhile.  The renewables reside clearly in the bull camp:

Not that the WECC needs the renewables as the overall outlook is modestly bearish.  With normal precip in the northwest, floods in California, and moderate temperatures, there is not much to get excited about.  Maybe thinking about taking off some Q2 length:

Both the forecast and the market have rallied from lows but with climo precip on the horizon coupled with reasonably healthy snow pack the trade starts to look less bullish, so does the Q3:

It’s early, for sure, but if you have length and snow pack builds you’ll regret holding – watch the weather forecast and watch for the Corps January flood control updates.   Big drafts will be bearish for the balance of Q1 and bullish for Q2 while minimal drafts will have the opposite effect.  Given current snow pack levels I’d suggest an April 15 draft to 1245 at GCL is in order but if the Corps buys into the El Nino story you might see 1260 and that would be Q2 bearish.

Mike

Good Morning,

Hope everyone had a nice holiday and are ready to get back to work as there is some work to be done to figure out what all the updates are and what they mean.  Let’s start with weather, it has warmed and turned a bit wetter:

Two weeks ago the outlook was quite bullish, today it is not; it is, at best, neutral, but I’d call it bearish, especially when compared to temperatures from last week.   Loads did spike a bit last week but, with the cold falling over the holiday, the event was mostly a non-event:

The north realized a decent spike but the south not so much.  The precip outlook has gotten bearish as well:

Where last week there was no precip we now see some, not a lot, but not bone dry.  Call it neutral as the forecast reflects climatology but just the hint of precip suggests a breakdown in the blocking high which could lead to another system.  Even California is starting to look wet:

Reminds me of … El Nino!  The latest dearth of snow has taken its toll on the current snow pack anomalies:

Take note of the six basins at the bottom of the list – five of those are above Coulee and all are below normal.  Mind you these are not drought-like numbers but they are below normal.   The River Forecast Center concurs, perhaps a shade too bullish:

Where does that Snake River – Hells number come from?  Upper Snake, Middle Snake, and Salmon all have 120% or greater snow pack anomalies.  Let’s not get too picky, the salient point here are the declines over last week – Coulee from 99% to 90%.   If the dry had persisted that station would be in the lower 80s by mid-month, but moot point, there is some precip heading towards the NW.

On another front we see that BPA has extended the work on the DC into early Feb.  The latest post is for a derate to 595 on the south-bound (see BPA outage ID 257864).

The above plot comes from the Ansergy Daily Forecast and we picked up the change hours after it was posted.  Today is STP Monday and our tea leaves suggest a bump in the front and cuts in the back:

Yep, it’s a mixed bag of news which should make for some choppy trading but my take is that overall the new year is a touch more bearish in the front and a bit more bullish in the back.

MIke

Good Morning

Last post of this year and want to thank each of our clients for their support during Ansergy’s inaugural year.  We eagerly look forward to 2016 and the many energy surprises which lay in store for all  of us.  One surprise has come early – the northwest cold front has grown a bit more:

Sadly, for you bulls or long utes, the cold reaches its zenith on New Years; had it been a few days later several northwest utes would possibly have set new highs – they might anyways.   The real cold is east of the Cascades, as it typically occurs, but even Portland gets down to the frosty low 20s:

and Spokane approaches the nether world of negative temperatures:

The first cousin of cold weather is typically calm and windless days and this event is just such:

That chart is saying there is about 5k MW less reported renewables in the ISO and the northwest than last week.  Ironically the renewable haircut may be having a larger impact on net demand than the incremental loads.   The ISO LMP market is feeling it:

Especially SP and note the effect cold in the northwest has on the Palo ISO markets.  The forward markets are responding in kind and leaving tire tracks on the backs of the persistent, and wrong, bears:

Who sold those 19s anyways?  Who bought ’em besides me and my virtual length?  Well if you did congrats and you might consider taking your well deserved profits as the old saying goes “buy the rumor, sell the fact” and the fact is today might be the last day to trade that cold.  The weather forecast turns appreciably warmer a few days after the new year arrives, but let’s examine all the fundamentals.

The northwest water year remains robust despite being the largest El Nino on record though the current outlook is for at least ten days of dry:

Feel free to ignore those silly numbers in days 18-22, you might as well mortgage your house and buy lottery tickets.  Don’t ignore the zero’s posted for ten straight days as those are real and really will come to fruition.  So call today the high water mark for WY16:

and it’s a pretty high high but today is as high as it most likely will get for the year.  Ten dry days is about 10% of the water year, that table above will be displaying much lower numbers on Jan 10.  Call that bullish.  Another bullish reality is the return of the DC on Jan 12, call that bullish too.  Powerex has already filled the line south-bound so don’t count on their capacity to absorb the incremental exports to SP:

In sum the Mid-C outlook can only be considered bullish but that can change with another storm system, for now there is nothing in the horizon to slow the train down, except a change in thinking on flood control.  That first hint of how the feds will manage this water year will be perhaps the single most important piece of news in all of January and expect that update during the second week of Jan and expect some level of drafting given the substantial snow pack.  Call that bearish Q1 should it happen.

Enjoy the holiday, be safe, and see y’all in the new year.

Mike

Good Morning,

Still pondering last night’s STP and it still doesn’t make a lot of sense.  Let’s start with the year on year:

One glance tells us 2016 will be the driest year in the last four, or is it?  Check out snow pack to refute that conclusion:

Salmon at 154% of normal, Middle Snake the same, Flathead 106%, and the Kootenai a mere 90% of normal.  Dry?  Not really.  How about the official forecast, maybe that can explain the dearth of STP water:

The Dalles at 97%, doesn’t sound that dry, but the clue may be in the week on week as that end of the river station dropped 7%, but why?  Nearly every material and relevant station had snow pack builds, some massive builds like the Clark Fork which jumped 15% from 88 to 103.   Back to the year on year, let’s examine TDA’s historical water supply:

It’s at parity with WY15 so shouldn’t  the projected STP flows reflect a similar value?  The answer may be that the NWRFC believes in El Nino and there will be no more builds in the hills, time will tell, but for now we have no choice but to say that this STP is modestly bullish as evidenced by the daily and  monthly plots:

The Dec bump can be explained by drafting to meet cold-driven loads but the cuts in Jan-Mar befuddle any attempt at a logical explanation.  That cold hasn’t gone away, either:

If anything it has gotten colder and extended its stay a few days adding another bullish hue to Jan.  The market seems to agree having rallied up a few dollars yesterday.  Even with that rally we think there is more juice left to squeeze and would stay long and take it into BOM.

Mike

Good Morning,

The news today is the cold snap we saw before Christmas has grown, in both intensity and duration, into the real deal:

And it is dry, so chalk up today’s forecast as both bullish short-term and long-term, though that long-term affect merely makes the term outlook less bearish at this point.  Too much snow to get excited about a dry Mid-C and it will take many dry outlooks to push this water year down.  Back to WX, check out Portland:

Most interesting is the change from last week; this cold front has settled in and doesn’t want to leave reminiscent of last June’s heat wave – could we see similar prices?  Nah, it’s not that cold (Seattle barely busts 30) but a rally is in the making and will spill over into the rest of the power curve and into gas .  You Mid-C haters beware.

Loads are rallying up a bit, nothing to get too excited about except that the rally happened in the off peak which exceeded the last few week’s peak:

One bearish turn can be found in the NWRFC’s 10 day forecast:

That is about a gig of new energy (versus either STP or last week’s 10 day for the same days).  No surprise here, BPA has no choice but to let the water flow to meet its demand and in doing so makes the Mid-C less bullish, at least in the short-term.  Longer term more water now is bullish as it means less water later and you better expect a major upward revision in the STP today – which will be perceived bearish.

The Ansergy forecast says it best:

And is up $2-3 across the 14 day horizon and up nearly the same in the term, though that is a gas-driven phenomenon but you should expect continued upward pressure as long as the Mid-C stays dry.  Another bullish change is renewables:

Take note of the total on the 23rd, that may have sent the CY15 high, if not it was close.  So what’s bearish in today’s fundamentals, you surely ask?  Nukes – they are all running, and BC is back to selling:

Between imports from BC Hydro and drafting Mid-C hydro the incremental demand from the cold front has more than been offset so from a net energy perspective not much has changed, at least on the surface.  But keep in mind that Powerex will not be selling if the price is not right and BPA won’t draft if the price is not right, which means that any relaxation in demand will be offset by corresponding cuts in both NI imports and QG discharge.  In other words don’t expect cash prices to plunge this or next week.  Even the ISO is showing some LMP love, hitting a high of $43 yesterday (sunday):

STP Monday today and, as mentioned above, we are forecasting a big bump in January but don’t be surprised if you see the bump across the curve.  I still think they are short a gig across their 120 day.

Mike

Good Morning,

Weather forecast is a mixed bag with one constant – dry.  Mid-C struggles to retain cold weather (at least on the west side), California enjoys a  lingering chill, and the Great Basin and Rockies are just plain cold.

The 500 mb says it best:

The cold front gets cut off by onshore flows leaving it trapped in the south.  Burbank is projected to have a few days colder than Seattle:

That doesn’t happen very often, either, but it’s a waste of cold air as the golden state’s demand is not that elastic to HDD.  Oh well, it’s dry as a bone, in fact the driest 10 day forecast since mid-Nov.   The cold hasn’t shown up in actual loads, yet, but is showing up in the demand forecasts:

This is a bullish turn of the screw for all of WECC, maybe that is why gas has rallied?  Bullish near-term but looking further out the snow pack is building everywhere:

You have to look hard to find any basin below normal, some are massive (Salmon is at 154%); in fact the entire Snake is as robust as it has been in years.  Even California is looking at a solid water year.

Another short-term bullish factor is the projected loss of about 2000 MWs of Mid-C wind energy over the next ten days:

We already said we were bullish prompt, even Feb, but never commented on the Qs, until now.  Let’s look at Q2 Mid-C on peak:

The market has loved this Q more than we did, then changed it’s mind and decided it wasn’t such a good thing to own.  I attribute this to the delayed reaction to building snowpack  – our model reacts, and quantifies in terms of price, the impact of snow  hours after the NRCS releases its updates.  The market tends to take a bit longer, probably because it relies on the NWRFC’s water supply reports which currently lag by a few days.  I suspect they are lagging more than usual because of an embedded El-Nino dry bias, not sure on that, just a guess.

Just because the market has tumbled so far doesn’t necessarily make it a buy, what makes it a potential buy is the 10 days of dry, but if I had to take a position I’d sell it based on current snow pack anomalies – these are levels that will drive single digit prices.  The light load has a different story to tell, and a different plot:

Here we see our forecast over the market as the market has now dispatched Colstrip and Bridger at night for all of Q2 … be careful of that.  Big snow typically means delayed runoff and the Mid-C can be notoriously cold in Q2 (definitely colder at night).  I’d be a buyer at these new found bottoms so what I’m really saying is I’d short the Q2 Mid-C on/off at $6.75 but be prepared to leg out of the long Q2 sometime in April.

Another Mid-C trade that has flipped is the Q3|Q2 roll:

The market hated the roll in Oct and Nov, now is starting to take a shining towards it while the forecast has only shown disdain.  Most of this is driven by the ever increasing hydro projected for July, especially the first half, which keeps Mid-C mired in the 7k heat rates:

With low gas prices the 7k units look like coal plants which is why the Q2 forecast is relatively indifferent about another 2000 MWs of hydro, whereas July enjoys much more elasticity to price with a change in hydro.

Unless something changes this will be the last post before Christmas.  Enjoy a safe and happy holiday.  Though  the Ansergy team will be taking a holiday the models won’t, they will be running 24/7.  Be sure to check the site (or more accurately, tell your real-time folks to check the site) for those of you that have subscribed to the data product.  For those without the product I suggest you contact Bill or I and upgrade your subscription by taking advantage of our end of year discounts.

Cheers,

Mike

Good Morning,

The 120 day update arrived last night with a hint of bullishness:

All good, right?  Me thinks not for a couple of reasons, but first let’s examine these months in prior years:

Now here is the conundrum – the RFC’s  is projecting WY15 to exceed WY16 for the Jan-Apr strip but that same agency is telling a different tale in its water supply forecast:

The most recent TDA, Jan-Jul, is 103% while the same day last year it was projected at 100%.   Go back and look at the year on year forecast – every month of WY16 is less, materially less, than WY15.  Either the RFC is projecting a very cold spring and consequentially a delayed runoff (2008 like) or it has its STP forecast wrong.  I’ll suggest the latter and believe there are 2 gigs of missing water in today’s forecast, at least for Jan-Mar.

One possible explanation might be found in the most recent SOR regarding Libby flood control draft.  In those minutes the feds felt, given a strong El Nino, that flood control drafts could, should, and would be mitigated.  Since El Nino always brings droughts why bother dumping the water in Feb-Mar when you’ll need it in May-June?  So far that thinking has been just wrong, this is not a dry year and those flood control drafts may yet be needed.

Current weather forecasts remain cold for the northwest though it is a short-lived event:

And there is a touch more precip than was forecasted last week.  There is also a decent amount of renewables (actuals) especially in the light load:

Though with a high pressure system blocking the storm track that wind-driven generation will taper off dramatically next week.  So what’s a trader to do, at least in the front?  We’d be inclined to cover our shorts (if you still have any, and if you do, shame on you) and be thinking of going long.

Our thoughts yesterday are the same as today and we liked the length then and like it today, maybe more so, given that the market has bounced off its lows.  I’d own either but, given that cash is heading for a bullish spell, albeit short-lived, the Jan should rally harder.  The problem with picking one or the other is that the rally will jack both.  For the record, most of that price spike (forecast at least) is from natty.

Alternatively, go long Mid-C by selling the spread at $8.50:

That spread (Market minus Forecast) is at stupid levels; levels based upon the Mid-C December flood-driven cash markets.  You really are going to price in a 3 std dev event for all of Jan?  Really?

Wait, stop, you scream.  Didn’t Ansergy just say, a few paragraphs above,  that the RFC is missing 2 gigs of STP water in Jan-Feb?  Isn’t that bearish and aren’t we talking out of both sides of our mouth?  Yes we did but Ansergy is not missing that water, you are; it’s baked into those forecast values you see rallying in the charts above.  If we used the fantasy STP values in our forecast we’d be laughed out of the market.

Mike

Good Morning,

The cold that was coming still is, just not as cold and for not as long, rendering the event a non-event:

Portland is chilly but just slightly below normal:

Still, this will be the biggest load event to hit Mid-C since last month but the hub is well prepared for winter loads, the reservoirs (Coulee at least) have been recharged, the mountains are full of snow.

Note the increase in off-peak flows at Coulee, a reflection of the new winter load shapes.  We expect the reservoir to be further drafted to meet loads over the next couple of weeks and, with no major precip in the works, today may mark the high-water mark for WY2016, and it’s a pretty high mark:

Those are big numbers for the NWRFC to be posting this early in the water year, evidence of solid snow builds.  Clearly this is not your father’s El Nino, at least for the northwest.  Where is the dry?

Well, it is dryer in the northern basins than the southern.  Contrast  the Salmon to the Kootenai: 154% versus 90%, that is El Nino-esque.  Back to the high water mark, with 10 days of dry this most recent forecast could well be the top but the trend has not been the bull’s friend.  El Nino is real and real big (2.9 vs 2.7 in 1997) but the storm track has been pointing a bit more north than 1997.  A few more storms like earlier this month and the Mid-C will end up with an above normal water year, which may prove problematic for the Corps’s flood control plans.

The most recent SOR contained an interesting insight into the Corps thinking with respect to flood control and “may result in some relaxation of the draft”.  The concern is that the northwest will be dry, at least the latter half of winter, and the flood control rule curves should be ignored or at least modified.  That is fine as long as El Nino behaves the way it did in the past but that is a bold assumption.  What if climate change has pivoted the fire hose to point a bit further north?  Then the northwest gets the California precip and ends up with a 1999 type water year without a 1999 flood control draft.  Big water and no draft almost assures flooding issues at some point in the runoff calendar but it’s still too early to worry about those considerations but not too early to monitor.

Today is STP Monday and we don’t know what to expect.   Will they reverse the Tuesday revision or will the RFC stick by their forecast until they don’t?  Given the plethora of water and snow everywhere I cannot accept their Jan-Mar forecasts and don’t, we use our internal projections in our price forecasts.  Offsetting that bearish sentiment is the reality of ten relatively dry days.  We’ll have all those questions answered by day’s end and am confident we’ll also have several new ones to ponder.

Cheers,

Mike

Good Morning,

A couple of quick updates.  The cold in the back end of the weather forecast for the northwest has not dissipated:

This event is not as remarkable for the quantity of HDD as it is for its duration – nearly a full week.  Of course, with the high pressure-driven cold comes dry and calm both of which are bullish.  Also worthy of mention is the storm system teed up in northern California:

That cumulative precip over the next couple of days is material and appears to be growing and will be the biggest storm to hit NoCal this season.  Also interesting that the forecasts is putting additional precip into the second week, unlike the Mid-C which is dry.  El Yeah, maybe it’s really coming?

On another note we observed that BPA has extended the DC outage out to Jan 12.  For those with the data product you would have caught this by running our TTC forecast report:

Note the price impact of the TTC change – $3-4:

Call it bearish and without the possible cold front approaching we would have been forced to write off all hope for a BOM rally, just as we had to do with Oct and Nov.

Mike

Good Morning,

The NWRFC posted a surprise update to its 120 day forecast yesterday, one which we believe is more likely a mistake than an actual change in their outlook, but really don’t know why a second was released this week.  What we do know is that this new forecast is much more bullish than Monday’s:

The black line is Tuesday’s forecast, the dark blue is Monday’s, and black is lower.  The monthly is a bit easier to discern the changes:

The revisions don’t make much sense, to me, but their numbers no longer play any role in our forecast; they just provide fodder for this blog and for that alone we wish a happy holiday to our friends in Portland.  Maybe they see a cold front coming which delivers chilly, calm, and dry weather?  We see something similar in today’s weather forecast:

The last two weeks of the chart put the weighted average temperature at Mid-C below freezing which is a radical departure from the current conditions.  Spokane illustrates this point:

Hey, that is cold for the folks over there, and this isn’t just a fly-by cold snap (at least the one in today’s forecast) as it extends out for nearly two weeks.  Way too far out in the curve to provide much confidence in it actually happening ….however, should it come to fruition …. cover dem shorts, chico.

Someone asked about the Diablo units ramping down:

We’re guessing its a storm surge derate (since both units came down) as the operators try to clear the kelp and other flotsam from the intake gates.  Not that anything matters any more with gas in a free fall:

But hey, it’s all relative in a spread world and the Mid-C looks like it has more bullish holiday cheer than the ISO.   The transmission outlook will add to that joy:

BC has been importing and the DC has been testing – check out that peak hour on Monday – 3014 MW on a line rated at 2900.  Seems to be working fine to me, maybe they will flip the switch this weekend?  Meanwhile the market continues to pummel Jan Mid-C heavy:

and the light as well:

All markets eventually have bottoms, and tops, and perhaps this is the Mid-C bottom.  Only one thing is certain from my chair … if today’s weather forecast is even close in days 7-21 we have found that bottom.  Big if; I guess watch and wait, but don’t wait too long to cover your shorts cuz Santa Claus is coming to town.

Mike