Weather-Trading – 09.03.2021 at 14:17

Main outlook

The “Weather-Trading” strategy will be on stable, lasting CDC or WWW periods that have an impact on NC and preferably DEU over 1-3 weeks. There will be periods when I say the market has bull/bear potential but given risk analysis, I will not suggest trading large volumes. This blog will be open until I have solved some issues related to restricted login…

Main outlook next 30 days

• The shift into a WWW period looks realistic
• There are some mixed signals in WRMe suggesting shifting forecasts and accumulated observed WWW not that extreme, even if we could see solid WWW forecasts in periods
• This suggests that we will see large price movements between “panic-mode” forecasts and “hops of control”

Short-range (front months:1+2 and front Quarter)

• WRM+PV/Jet+SRA

  • The WRM-e and WRM main signal is many WWW form now and into April
  • PV trends closer towards Greenland and is responsive to the WRM-WWW effect
  • Uncertain start of week 10 that could be a temporary bull turn
  • Wednesday could see similar or CDC’ish hints in forecasts

• Statistics – normal vs WRM+PV/Jet

  • March and April are accumulated not that extreme WWW nor CDC, thus shifting forecasts will most likely take place
  • In case of too strong CDC or WWW, forecasts risk is high for “unexpected” changes

• Volatility forecasts – “strategy”

  • Both the normal period and shifting WRMe periods suggests higher volatility between WRM periods
  • This suggests that positions should be having a shorter timeframe and that even small WRM hints can shifts forecasts
  • Only at extreme WRM+PV/Jet setup can the position be held/taken based on the outer edge of the normal

• Hydbal/Inflow/Wind/Temp/Flow

  • Inflow is coming down supportive for strong SYS price even if we see high NC and DEU wind since Hydro producers has control and we don’t see for now solid WWW forecasts
  • This suggests a gradual response of a WWW shift on water values and we need higher inflow+lasting WWW to see solid pressure on SYS price and thus futures

• NC SYS price vs. futures

  • After the bull correction the last days and how SYS price looks like there is limited bull support on futures, but for now it’s not any bearish signs either
  • In case of a strong SYS price for Thursday with the very high DEU-wind, we could see further bull support form SYS price thinking
  • It’s not until early week 11  we see the potential for stronger bearish SYS price development for the futures

• DEU SYS price vs. NC

  • More wind into early start next week will put pressure on S-NC spot areas and thus SYS price will be lower than DEU
  • Into next week we could also see a WWW shift at endings of forecasts putting pressure on DEU prices prognoses and thus SYS price

• NC spread to DEU

  • For now low inflow, moderate WWW EC ens mean forecasts and strong SYS price supports NC future prices
  • But, into next week both NC and DEU will most likely see stronger WWW forecasts and that will push NC lower DEU, at a time when also DEU shifts down

• Fundamental market models and thermal-carbon

  • SYS price vs. futures
    • SYS price is in line with model outlooks and futures has adapted to less WWW to CDC hints
    • Into next week WWW forecasts will shift the outlook and put significant pressure on current prices
  • Futures vs. market models
    • Market models support a modest bull development after the bull correction the last days
    • If EC ens mean shifts to + 5 Twh market models will be adjusted 3-5 Euro down
    • Lasting WWW into April and models will run after the market…
  • Thermal and Carbon
    • Carbon looks to test upper limits and can shift bull if +40 Euro holds
    • Into next week with new WWW periods seen in EC ens mean for DEU we could get some bearish weather effect on thermal+carbon

Weather-trading and hedging: short-range

(Trading will be done stepwise and per step, we need profit on each step and a confirmed WRM+PV/Jet analysis. If no profit awaits confirmation or close positions)

• Week 10

  • The bearish risk is seen from Thursday, especially after the bull corrections the last days
    • Sell Wednesday:
      • – 10 MW April
    • Sell Thursday (only if profit on April+WRM+PV/Jet confirmation):
      • – 5 MW Q1

• Week 11

  • WRMe suggest a turn to less WWW and with many Normal-CDC’ish days into late week 11
    • Sell Monday if profit and confirmed WRM+PV/Jet analysis:
      • – 10 MW April
      • – 5 MW Q1
    • If no solid PV-WWW setup:
      • 100% Profit-taking Thursday-Friday
    • Then, await the outlook over the weekend

• Week 12

  • Looks to be a new bearish period, but the week could start with a bull correction
    • Any bull weather turn-hints could easy push futures 3-4 Euro up if we see a bearish impact up to week 12
    • Strategies for Sell will be made based on the weeks 10-11 outlook and profit/losses and the impact of the WRMe-CDC signals

• Week 12

  • Into week 13 a new bearish period could be observed
    • Later into week 13 there is possible a new WRM-CDC period showing up that could shift forecasts dry and calm for a period into week 14
    • An FSW is not expected to be seen until late April

• Hedging

  • The WRM-WWW period week 10-13 will lower prices, and thus if hedging is planned to be carried out during this timeperiod it should be down prior to the WRM-WWW period into week 10
    • The bull start of week 10 supports hedging at current prices and outlook onwards

Weather-trading and hedging: medium-range

• Even if March becomes WWW it does not change the outlook for the Medium-term
• NC+DEU
  • Typical during SSW years, we see accumulated dry weather regime throughout June for NC, and C-EU will see support form low wind over a longer period
  • Also, years with a strong FSW will also be supportive for a dryer path towards the summer
    • How the FSW players out shifts from year to year but the accumulated impact could be bull
    • This year WaF looks to cause in line with SSW effect a new strong FSW which supports a dry+calm outlook up to summer
    • But this is not expected to take place until the second part of April…
  • That will be supportive for NC, and the large gap between NC and DEU onwards is a bull motivator even if Hydbal is normal+ into the autumn
    • => Carbon could take a solid bull turn towards the summer if we see some longer dry and calm turns
    • From 1 of Oct, the UK cable is operational…

• Timing of hedging – medium time frame

  •  The gap between NC and Germany is too large, and even if prices come down to “panic-mode” in shorter periods, the main outlook up to summer does not support a collapse and thus, we could see more bull NC prices later on
    • 1 of Oct the UK cable is 100% operational, and in 2022 the Nordlink cable increases its effect
    • =>, as we have seen, there is a bull potential on SYS price, even when NO has almost 100% reservoirs, in that SYS price went mega bull as soon as inflow and wind came down below normal (week 48, from 1,5 to +20 Euro…)
    • Panic-mode looks to be related to shorter periods when we see massive wind and inflow in NC, especially when DEU follows up with strong wind

• Correction of portfolios

  • Especially if we see accum dry up to June that will be needed since then the Gap between NC and Germany will be less => hedging prices are about  28-30 Euro for large companies
  • Into the winter new UK cable and low nuclear power production as seen this winter has strong bull potential during CDC periods regardless of Hydbal as long as inflow, wind and temps are low…