We were bears leaving fundies, let’s see if markets are cheap enough to offset that sentiment. Today, we’ll take an exclusive look at SP15 markets, starting with Jan (BOM) and ending up with the near-term Qs.
We’ll comment in the above APT order.
Jan is the BOM now, and it is relatively cheap from both a price and HR perspective, but the fundies look awful. The weather is growing both warmer and wetter which suggests falling loads and rallying hydro. Doubt the latter plays much of a role in setting price but the former most certainly will. Most troubling, all WECC hubs will see loads fall.
But one thing I can’t get out of my head is the embedded Socal Citygate term market premiums; what if these collapse? Length will suffer, that’s what happens. Not saying Citygate will reset but those one bcf draws last week were unsettling. For now, we’ll see all spot gas prices tank off of declining demand, and we should see heat rates drop off of the same. At this point, we are SELLERS despite the low prices.
Feb is just Jan, price-wise. The market has sold down both the PP and HR; now the HR is at or near a contract low. Time to buy? I doubt it because of gas; we believe the sell-off in term gas may resume, but let’s look at the roll.
The roll was a buy a month ago; today it is just fair value for PP and a tad cheap for HR. Given that we’d instead just short both BOM and Prompt, we’ll pass on the roll.
More fairly priced than either BOM or prompt, but negative cash sentiments will have bearish effects on March; we made a small position by shorting both, we’ll pass on March.
Nothing of interest here, Pass.
The April heat rate’s cheap, but the PP isn’t suggesting more substantial gas price premiums in April than any of the winter months. There is not much of a bullish case to be made for this month given that it is too early to get very hot in LA. Our bias would be short, but we have weak conviction. Pass.
Like every WECC winter roll, this was a raging buy a month ago, now it’s a yawner and we’re passing here, too.
Nothing cheap in the Prompt Q, unless you see winter rally. We don’t know what would drive an SP rally in the next couple of weeks; you need a new temperature forecast to make that happen. Note the five-month-long heat rate rally. SP heat rates have cleared at very low levels because of the high Citygate prices, but the market isn’t pricing that in. If anything, I’d sell this heat rate.
The Mother of all WECC term markets, the mighty Q3 SP15 HL. This mama hasn’t moved much in the last two months; it’s just sideways meaning anyone that bought this in the last 60 days has just wasted VaR and credit. That 1 BCF draw this weekend were eyebrow raisers, will Socal Gas be allowed to pull the same this summer? If it can, or if import capacity is increased, the Citygate premiums could evaporate, and the Q3 would tank $10-$20. We aren’t ready to bet on that, yet, nor are we willing to buy this. Pass.
Talk about an extended rally, the 3 to 2 PP roll is upward sloping since March of last year, nearly a year. The HR is just the opposite because of those fat Citygate premiums. It seems to me that almost everything at SP is just a gas trade and selling this roll seems a somewhat safe way to short gas.
Super cheap heat rate, back to a contract low and the power price isn’t that rich. If I were short in the front and needed a long hedge, I’d consider buying the Q4. We are slightly short SP front, but not short enough to own this dog. Pass.
Wow, looks like the mirror image of the Q3|Q2. You could either sell that roll or buy this one; each does the same thing – shorts gas.
If you think you might be entering into a coma, this would be an excellent trade to put on because you won’t see much movement either way. You could sleep for another six months and probably be marked the same as the day you put it on.
Instead, why not buy the roll? It is cheap PP and fair HR suggesting not much gas roll risk.
Let’s say you are bored, why not look at the prompt cal roll. Price-wise, this is dirt cheap, never been this inexpensive and the HR is reasonable. The roll suggests that the Citygate problems are not resolved by 2020, that is a year away, at least. I’d buy it if VaR weren’t an issue. Who knows, even the maintenance crews at Socal Gas might be able to fix something within a five-year window? Who knows?