Market Commentary

Good Afternoon,

The NWRFC updated its 120 day forecast today at 2:43 pm pst and delivered no great surprises.  The front was raised (yawn) and the back was lowered (yawn again, if you read this morning’s blog).  That said, it is still worth a gander, starting with the dailies:

Most interesting here is the extension of the upward sloping line in May suggesting the govt’s first look for June is going to be quite bearish.  The monthly plot best demonstrates the uneventfulness of this forecast:

The cuts in April stand out as does the lack of March volatility but, as for the latter, just give it time and we are confident the forecast will eventually approach the 5 year average.  Water Year 2016 is shaping up to be a big year, for water that is, as the year on year plot shows:

Especially in May where their current forecast is in excess of all years but 2013 – which suggests our friends in Portland may have been guilty of a mild case of irrational exuberance.  Given today’s snow pack and precip outlook I am leaning towards downward restatements of those May levels.

Good Morning

January retired with a whimper while February commenced with the same whimper, though a shade warmer and a touch dryer:

Mid-C Composite Weather Forecast

The 6-10 is bone dry, something we haven’t seen for weeks, but the 11-15 holds hints of another major storm system, though anything that far out in the forecast horizon comes with a very low probability.  The rest of the WECC is equally dry aside from a nice storm in the Rockies today.    What is for certain is normal to above normal temperatures which won’t help anyone’s long position.  The River Forecast Center won’t support that long position either, they are up to their usual bag of tricks – low-ball the front end of the 120 day forecast than restate upwards the front as the week unfolds:

River Forecast Center 10 Day versus STP

Looks like the STP will be revised upwards today, at least for the first 10 days of BOM, which is the exact same tactic deployed for the last couple of months.  Don’t expect the April-May to show much change, if anything it might be lower.   The latest Water Supply forecasts have slipped a bit:

Water Supply Forecast

Though last week was wet it  was warm wet, at least from the RFC’s persepective, and now the the Apr-Sep TDA has dropped 1%, though both GCL and TDA remain 1% above what was used in the official Jan forecast (incorporated in Jan Flood Control).  Given little precip forecast over the next ten days we prognosticate no change in the Feb Flood Control, at least as of today.

Outlfows at Bonneville have been robust, even equal to last year’s big water:

Corps of Engineer Discharge for Generation Summary

These robust flows should be watched closely as last year’s water year started strong and ended in $300 cash prices in June.  Not saying we are seeing the same thing this year but any excess discharge in February is water not flowing in June-July.

Our outlook remains bearish but is tempered by the 10 days of below normal precipitation and further tempered by low prices.  It’s safe to say that a strong water year is priced into the Mar-July forecasts and any extended dry weather will put bid-side pressure on the market.  Unfortunately it is a “watching paint dry” kind of market where patience will be rewarded and impetuousness punished.

Mike

Good Morning,

One nugget of information today which caught me by surprise, perhaps because I am sitting in 80 degree Mexico at the moment, was a cut in the RFC’s water supply forecast for yesterday:

NWRFC Water Supply Forecast – Apr-Sep:

Pretty much all basins are off from last week despite above normal realized precip.  The only conclusion one can draw  is that most of that precip came as rain, not snow.  The snow basin reports somewhat support that conclusion:

NRCS Snow Basin Summary

Hard to believe it rained at any of these pillows above 5000 feet but the numbers don’t lie, do they?  This may change our outlook for the next guidelines for Flood Control draft to less bearish, though just slightly.  A lot will depend on how the current storms affect snow pack:

Mid-C Composite Weather Forecast

It is clearly colder than the recent past and yet remains modestly wet suggesting at least normal builds, maybe slightly above normal.  NP is getting slammed again with another major rain event:

NP15 Composite Precipitation Forecast

Despite the big precip in No Cal their  reservoirs are struggling to fill, especially New Melones which was sitting at 2 maf in 2012 and now is just 0 .3 maf – the hole was just too deep to fill.

Wind blew hard yesterday at the Mid-C rendering bearish  real-time prices though the outlook for the weekend is calmer:

WECC Renewables (SO & BPA):

Stream flows remain robust (more rain than snow) on the lower Columbia:

COE Stream Flow Summary

So robust that yesterday’s flows at Bonneville exceeded same day flows in 2015 and 2014.    BC Hydro continues to waffle, neither selling or buying big from the Mid-C – perhaps they are feeling a bit long at the moment.

Our short-term outlook remains neutral in the northwest and slightly bullish in the south.  Our Q2 outlook is a tad less bearish given the cuts in the Apr-Sep water supply but we are a long ways from being bullish.  Unless there is compelling news today we would just sit on whatever positions we had and watch the events unfold over the weekend.

Mike

Good Morning,

Not a lot of news; a bit dryer in the northwest, slightly cooler but not cold.

Most telling is the lack of precipitation beyond 10 days and worthy of our attention.  The front-end precip will keep the Mid-C basins at, or slightly  above, normal which pretty much locks in the Feb official water supply at today’s numbers:

The important point here is the month-on-month changes at GCL and TDA – both of which are up 3% from the numbers used in the initial flood control drafts.  In other words, expect a slightly deeper draft when the Feb is released in the second week of that month.

Northern California is teed up for another big storm system, this one dropping over an inch across the state:

As January expires we can toss out the old El Nino playbook – dry northwest is just not a statistical reality any longer.  It’ too bad because this was the only long-term tool for predicting water anomalies.

Renewables have backed down rendering the Mid-C a touch more bullish.  Couple that with falling temperatures and we have some moderate hints of bullishness for Feb.  Nothing to cause over excitement but enough to suggest the sell-off in the front is done.

We still like owning the March Mid-C and would not be short going into Feb.  The Q2 is another story and we have been biased short for the last few weeks.  Nothing has changed in that sentiment, especially given a bigger draft in April.  At some point Mid-C will trade in single digits but when that occurs will depend on temperatures.  April could be the month, during the draft, but that month can also be notoriously cold.

Mike

Good Afternoon,

I wanted to hold off on posting this morning because it would have been the same post you’ve read the last few days…. alas, it’s still pretty much the same post …. wet and warmish, though its a bit less wet and a lot less warm:

Mid-C Composite Weather Forecast

The star of this forecast is Temperature – not Precipitation – as the composite forecast for Mid-C is dropping back to normals from the tropical winter highs recently realized.  The high of 46 (Jan 26th) is replaced with average temps in the mid 30s and you should expect peak load bumps in the 2000-3000 mw range.  That is kind of bullish but is pretty much washed away by the next seven days of above normal precip, which is followed by a spat of dry days, something not observed in the 15 day outlook for 15 days or so.

Another bullish factor is the northwest wind no longer blows:

Renewables – Mid-C

Don’t bank on this “calm before the storm” lasting too long, the storm is coming and so are the winds.   The DC is back and the lines are filling up rendering Mid-C less bearish and the ISO less bullish, though we don’t see much change in prices.

Mid-C Exports (actuals):

This is about as bullish as transmission exports out of the Mid-C will get as BC has backed off, ironically, with the return of the DC.  That said there is about 2000 MW more energy leaving the Mid-C this week than last and the mirror image can be seen in the ISO Imports.

ISO Imports (actuals):

Casting a long, and wide, shadow over these hints of northwest bullishness is the ever-increasing water supply outlook.  This week’s Water Supply forecasts are up, as to be expected, and will rise again next week just in time to be deployed by the COE in setting flood control drafts:

These water supply forecasts are higher than what was used last month and will be higher still after the latest storm lays down another couple feet of snow.  One can/must expect Coulee to be asked to draft another 5-10 feet in April which will further batter that battered month.

Given what I see today I’d not enter Feb short, but I wouldn’t be too long either as the price is probably at value.  If you make anything in Feb, from either side, it will be a result of news that is not yet public.  The Q2, and the Q3, on the other hand should, remain short as the outlook is more bearish today than it was last week.  That sentiment shall remain the same until the price plummets further or we see a string of dry days or we see some unseasonably warm weather which triggers the first freshet.  We don’t see any of that today and we can only stay short, maybe shorter, given today’s facts.

Mike

Good Afternoon,

The NWRFC released its weekly outlook for northwest river flows this afternoon (1:37 pm pst).  As expected the front received a boost while the back was relatively ignored,

Daily Energy Associated with STP:

Jan 30 is about 3,000 aMW higher than last week’s forecast for the same day.  In fact all of BOM is above the average for those dates, then the forecast reverts back to below normal until April, which is when the GCL flood control commences.

Monthly STP Energy

BOM up about 2,000, Feb up 500 aMW, March unchanged, April up slightly and May backed down slightly.  If there is anything suspect in this forecast it is the Feb-Mar, but not by too much, as show in the year-on-year:

STP Year on Year:

Most telling is the forecast in May is above all previous years (2012-15) – this in an El Nino Year!  If I was to guess I’d say that the May is going to be backed down some, probably end up closer to the 2014 water year.  Feb and March they will be revised upwards, Feb for certain, to levels closer to the average.   The most recent precip forecast supports this prediction:

Weather – Mid-C Composite Precipitation:

That is a big body of water heading towards the Mid-C and arrives  in front of the RFC’s “Feb Final”, the forecast which will be used to set flood control levels.

Mike

Good Morning,

Starting with weather … the WECC is looking at another bearish week with warm temps and robust precip.  The Mid-C storm we first discussed early last week, the one that was in the 10-15, survived the calendar and now appears locked in:

Mid-C Composite Weather Forecast

in fact it has grown in intensity from where we left things late last week and will impact the production basins:

Kalispel, MT Precip

Spokane WA Precip

Northern California will also receive a decent dump (nearly an inch) setting up the week to be wet for most of the WECC.  It’s already been wet and snow pack is building to anomalies not seen since the December storm systems moved through:

Snow Pack – Selected BC and Mid-C Stations:

There were week on week builds across the basins and many of these are approaching the Dec levels.  The Water Supply Forecast is rallying, albeit at a much slower pace than the snow anomalies.

NWRFC Apr-Sep Water Supply Forecast:

Contrast the current forecast with the values used in the Jan Flood Control guidelines:

Coulee was 93% then, 95% today; The Dalles was 94% and is now 97%; The Canadian levels are off a bit, too low if you look at snow pack, but much of their draft was in January and is pretty much over. The Feb drafts should be expected to increase given another storm hitting this week and hints of one to follow the first week of Feb,   Most of any increased draft will occur at GCL in April which could set that month up for some big water.   Of course it is too early to say it how bearish it will be, many things can happen that will dampen the effect of that enhanced draft, things like a cold April, but even then Coulee will still be dumping nearly half its usable storage in just a few short weeks.

Renewables were robust over the weekend, especially in the light load.

WECC Renewables

The DC is now flowing energy to SP:

Ironically the Northern Intertie south-bound flows have backed off a bit:

Doesn’t make a lot of sense to me given the big wind and the return of the DC but is probably just a short-term aberration and BC will continue to flood the northwest with its surplus energy.  The return of the DC has also affected flows within California as SP15 is now pulling less from ZP and NP pulling more:

Transmission Flow Summary

That does make sense, SP is now longer by a 1000 aMW and consequently the electrons flow north out of ZP.   Today is Monday and that means the NWRFC will be releasing its 120 day forecast later this afternoon.  Our tea leaves suggest a major revision upwards, check out the 10 Day forecast.

NWRFC 10 Day Forecast vs Last Week’s STP:

Whoa – that is a major change for the end of the week – for the entire week.  Friday, the 29th, is projected to be 3000 aMW more energy than last week’s STP for the same day.  One can only surmise that today’s STP will be a large bump for Feb, from 500 to 2000 aMW.  For that matter the whole strip should see increases but our confidence is high that Feb will be jacked big.

Mike

Good Morning,

The weather outlook for the northwest remains warm and modestly wet:

Mid-C Composite Weather Forecast

The storm next week remains in the forecast and most of that Mid-C precip makes it into the eastern production basins setting up an ever-increasing water supply outlook.  That is the bearish news, now for the bullilsh news – the DC line is back and flowing electrons:

Actual Flows on the “DC” Line

After a nearly four month hiatus the line has returned rendering Mid-C less long and SP longer.  The Canadians remain sellers though they backed off some yesterday, perhaps the price wasn’t right:

Actual Flows on the Northern Intertie

I expect our friends to the north to continue to sell into the Mid-C given that they are enjoying a robust water year:

Snow Levels by Basin (BC and Mid-C)

Robust, and growing ever more robust, as are all basins though none are near the anomalies of four weeks ago.  The RFC’s near-term stream flow forecasts are also growing:

NWRFC 10 Day Forecast versus STP

Those are big back-end bumps and you should expect another bearish STP outlook on Monday.  Bearish in Feb would be my guess, maybe we see another 500-1000 MW boost to prompt, maybe more as the RFC is now projecting a 2,000 MW bump for next week.

Our outlook remains bearish everywhere and we would be net short and any length would come from rolls and spreads though lower prices renders us less bearish.  At some price point it no longer makes sense to carry a short and I think that may be the case in the May-June light load, trading as it is in the mid single digits.   I am confident cash will trade in the low single digits for 14-21 days but am not sure when said event will occur.  I am also confident it won’t happen for the market’s 60-90 days; no that won’t happen in a 95% water year.   So when will it happen?  Don’t know but do know April is going to get shocked by a 30′ foot GCL draft spread over about 20 days.

Enjoy your weekend,

Mike

Good Morning,

The outlook for Mid-C is for slightly dryer in days 1-5 with hints of a new storm in days 6-10.  Temp-wise it’s still warmer than a bull would like; really its just normal temps.   The rest of the WECC is normal as well, though NP15 enjoys more precip but nothing epically El-Ninoish.

Mid-C

That precip in days 6-10 is interesting and probably has an equal chance of not being realized, however, if it does come to fruition it arrives in front of the Feb 1 Official Water Supply.  Important because Feb Flood Control Drafts will be set off of that Feb 1 number.  We will be watching to see if that storm persists over the next few days as it is currently modeled to reach the production-rich mountains in the east.

Spokane

Kalispel

Loads are just normal, perhaps a touch more bullish than earlier this week, but well off the highs from the start of the month:

Peak Loads – Northwest

Northwest wind is abating from early this week.  Take note of the light load hours on the 19th – massive price crushing energy:

Renewables – WECC Actuals

Don’t expect to see that shape this weekend, the outlook is for a bit calmer, at least for the next few days:

Mid-C Hourly Wind Speed Forecast

Something is astir in the NWRFC’s 10 day flow forecasts – like more water on the backend, suggesting another bearish front-end STP for next Monday, but what else is new, they have been playing that hand for the last month or two:

NWRFC 10 Day Forecast vs STP

Jan 28 is projected to be nearly a 2000 MW bump which suggests the Feb is due for a much needed upward revision – time will tell but that is what I’d expect for next week’s STP.  While on the subject of the NWRFC let’s check out the most recent water supply forecasts:

Water Supply – Apr-Sep:

This table was sorted by week-on-week change, descending.  Lots of upward revisions, nothing lower equals bearish, but we already knew that.  What is relevant here, and irreversible, is the number which will appear on Feb 1 as that will dictate any changes to the 2016 flood control drafts.  Irreversible because once the water is drafted its gone for this year, so if Feb-April end up bone dry, like a good El Nino should, the cat is out of the bag.  That very same cat escaped that same bag in 2000 and triggered the energy crisis – not saying it’s deja vu all over again but am saying no one knows what this water year will eventually become – though we are pretty confident it won’t be a dry one.

As things stand now you should expect single digit on-peak prices sometime this Spring with June being the most likely month:

Mid-C Daily On-Peak Price Forecast

In that early June period we see, in our price forecast, hints of single digits.  You see it more clearly in the off-peak:

Mid-C Daily Off-Peak Price Forecast

This year, as it now stands, is not a big water year and the peak runoff will be of relatively short duration; short if we have normal temperatures.   Note in both charts the relatively stability of April prices – stable because there is not enough water to knock all the coal off margin, even after the NWRFC’s massive STP revision this week.  The only thing that will crush the April into single digits will be a warm March and April.  Then we will see the Corps draft the runoff and you should be buying May and June and Q3 and Q4, but don’t count on warm March and April, it doesn’t happen often (it did in 2000!).

So what do we love and hate today?  Not much has changed from our outlook earlier this week – indifferent to slightly bearish in the front and bearish on Q2 and Q3.  Q3 because as the water year builds it spills into July (note the forecasted on peak price gap in late June).  Get this water year above 100% and July could get smoked, but for now its probably just a shade over-priced.

March-Feb Onpeak Mid-C Roll

I’d buy the March and sell the Feb in the mid fours for a couple of reasons.  If we are right, and the RFC bumps the front in the STP, the Slice guys are going to be sellers of Feb next week.  The RFC has been reluctant to move off of its numbers beyond two weeks, we don’t think they will next week either.  Also, Feb will be BOM soon and will bear the brunt of bearish cash, the March a bit more resilient to cash.

April-March Mid-C Onpeak Roll

Likewise I’d play the Apr-Mar by selling the April and buying the March.  Any upward revision to the Feb 1 water supply forecast will force a larger April draft and will have much less impact on March as the above Coulee revised drafts will all be pushed mostly into Feb.  This trade is just a lotto ticket on some cold weather in Feb but doubt you could lose much on it.

Mike

 

Good Afternoon,

Normally I’d wait until tomorrow morning to publish the STP update (updated at 2:46 pm PST on the RFC site; updated on Ansergy’s site 5 minutes later) but these numbers in the current forecast are so staggering, at least in terms of delta from last week, that I could not resist.  Let’s start with the daily shape:

It’s like they just pulled out the 5 year average and used it instead of their usual method – the Ouija Board.   The sharp rally beginning around April 9 corresponds to the GCL Flood Control draft which suggests this report has been heavily biased by regulation (versus natural river flows).  To put the change in perspective let’s examine the monthly plots:

You see what I mean by reverting to the 5 year average (gray bar)?   But forget all of that and focus on the change in aMW: 2700 in April and 5000 in May!  Yes, you read that right, 5,000 MW change in a weekly forecast.  You go to bed and there is one nuke at Mid-C; you wake up and now there are six.   Well, six for one month, but don’t count on June cuts from the May number because it will be bigger than May.

To put this year in perspective let’s look at the year on year:

Strange looking chart – 2016 is materially lower in Jan-Mar, then about the same in Apr-May.  I don’t buy it, I think the RFC is short 2-3000 MW of Feb Mar water and will choke it up as those days approach their 10 day forecast.  On final comment, look at 2015 May.  Keep in mind, that forecast was released around Jan 20, 2015 and the ultimate value for that strip was massively lower – so was June 2015.  Not saying we’ll see that strange set of two months this year, just pointing it out.

So what’s it all mean?  It means a whole lot of Northwest Slice customers just got a whole lot longer for April and May and will be sniffing out bids tomorrow morning.  If it was me I’d not show one, instead I’d act like a Slice Customer and show a few offers in the Q2 …. assuming that kind of trading strategy is still legal …it was in my day.

Cheers,

Mike