Good Morning,
The Mid-C looks to be moving into a wetter spell, not the epic rains of December, yet above normal. That wetness, coupled with temperatures which are warmish plus those blustery winds which accompany such storm systems, bodes a touch bearish for the northern hub:
How bearish depends on what British Columbia does as much as anything else. If they continue selling 1500 aMW into Mid-C it will be bearish but if they exercise their virtual pumped storage options some of the short term slop will be sponged up by our Canadian friends.
While on the subject of transmission there is no new news to report. The DC partially returns on the 20th with a south-bound TTC rating of 595 and fully returns in early February. Whenever it does finally start flowing electrons it probably won’t make much of a difference as BCH will just increase their southbound flows or maintain them in softer markets.
One indisputable fact is the impending precip will dampen the Q2 and early Q3 outlooks. Those storms may also indirectly affect Feb-Mar as well via flood control. Our current guess on flood control-driven drafts is that it will be moderate to very moderate … maybe Coulee at 1260? That is based upon a relatively dry system today (per the NWRFC):
Take note of the four lowest stations – all major production basins and three of the four feed into Coulee. Also take special note of the week on week and month on month cuts everywhere. The Corps of Engineers, going into this week’s initial decision on Flood Control, should be biased dry and consequently advocate minor drafts. That could change if the precip outlook remains as is, or grows. Watch the COE site for a flood control update late this week or next week.
That is one school of thought, another is that the water year really isn’t as bad as the NWRFC proposes. This other school deploys snow pack anomalies as the basis for their positions:
Their outlook is less dry, most of the basins feeding into Coulee are in the mid 80s, and with a new storm system potentially building we could see 90s by next week. If the Corps ignores their federal brother’s forecasts and looks just at snow they may be inclined to lean towards a more aggressive draft; perhaps Coulee at 1240? Now that would be bearish Feb-Mar and possibly quite bullish May-June. Worth watching, meanwhile you have to keep on trading/hedging, and be right more than you’re wrong, or your boss is going to wonder why you are sitting in that desk, right?
Prompt Mid-C has seen a widening delta between the market and the forecast of late as the latter has been pushed up by a tightening hydro outlook. Given possible flood control drafts in February, or no drafts, we wouldn’t trade this today as there may be information in the market later this week, and surely by next week, which could adversely affect that position.
Something I would trade today would be the on/off; take a look at the Mid-C Feb on/off:
The market has kept this spread beneath the forecast for several weeks, then parity, now it is trading at a substantial premium, maybe too much of a premium. Here I’d be inclined to short the on/off assuming I could bag an eight handle.
More interesting than the Feb on/off is how the April and Q2 are developing. I’ve said it more than once, it is too early to bet your boss’s farm on the runoff, but it’s not too early to pick off anomalous mistakes as that water year develops. One of those mistakes may be occurring in the Mid-C light load markets. Check out the April off-peak:
The forecast is pushing up on the declining snow pack while the market is just puking – ignoring the gas rally and that same snow. $11.00 light load assumes no gas on the margin, no Centralia, no Boardman …. no way! Now look at the Q2, because this is where the mistake is occurring:
The Q2 is flat to the April, at least in these questionable broker-quotes we are using. Assuming it is in the real world then that is a mistake for a couple of reasons. First, April will trade off of March and May and June will be relatively inelastic to that cold-driven cash. Next, the runoff will most likely not begin until May and won’t crest until early June. April can be notoriously cold, May rarely, June never. In short, buy the April off-peak in the eleven handle and sell the Q2 at the same price, or, if you like rolling dice (and winning), just buy up all the $11.00 April light load you can find.
Today we will ponder the latest STP head fake and are predicting it to be of a bearish hue:
You recall that sermon I laid upon you last week – the one about the RFC under-forecasting the front and later repenting of their sins. The chart above is re-preaching that same message in a big way. Given some new precip in the outlook, and the RFC perhaps feeling sheepish about continuously understating flows, we think today’s numbers might be big and bearish, like about 2 gigs in the bom. I don’t see them that contrite in the Feb-Apr so maybe a slight bump there.
Cheers,
Mike