Weather-Trading: 02.03.2021

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…  

• We are seeing a bull potential towards the start of week 10 before a 2-3 week WRM-WWW will put pressure on NC + DEU prices
• The WWW period will most likely set up observed WWW that will rise Hydbal and with high DEU wind as well NC will come down
• There are some small hopes of a new SSW or a strong FSW into late March
  • But this looks to fade off

Weekend risk

• Verified: There is a WWW signal in forecasts that could be stronger into week 9 but so far only GFS follows the WWW signal…
• But later into week 9 and the start of week 10, there is a CDC risk that can be seen in ens mean => bull support

Short-range (front month:1-3 and front Quarter: 1-2)

• Hydbal/Inflow/Wind/Temp/Flow

  • Into week 9 there is bull support and thus this will limit any bearish effect at the start of the week
  • Higher NC Wind will limit the upside of SYS price even if DEU sees stable calm winds

• WRM+PV/Jet+SRA

  • The WRM-e risk verified and only GFS shows a WWW setup for now
    • => Still possible that EC ens mean shows a fallback overnight to stronger WWW
  • There is possible a CDC development showing up later into week 9 forecasts but that’s looks to be temporary
  • Before a stable CDC setup in EC ens mean forecasts, we need to pass Wednesday
  • Thus up to the start of week 10, we will most likely see bull weather forecasts development
  • Then the WWW risk kicks in for 2-3 weeks
  • Upper PV limits the WRM-WWW effect for now => track PV development to see how WWW it gets in the WRM-WWW period…

• NC prices

  • SYS price looks to have a bull potential when inflow comes down so in the case of the Normal-CDC path +40 Euro could be seen on days with calm winds
    • That’s supportive for the futures as long as the weather stays colder, drier and calmer around normal to below normal
  • NC is sensitive to WWW weather and 2-3 weeks of solid WWW will lift Hydbal and inflow to levels that will put further pressure on prices
    • But this is not likely to be seen until week 10-12 so up to then there is a bull potential
    • Also, short positions at current NC prices and spread to DEU should be done when both NC and DEU sees a “lasting” WWW setup

• DEU prices

  • More wind will limit upside on DEU and in the case of WWW setup seen into week 10-12 forecasts DEU will also come down

• Spread to DEU

  • There is some support on SYS price later week 9 since inflow and temps come down and forecasts could show less WWW to CDC setup again
  • But, this looks to be temporary and nothing to go major bull on even if the gap between NC and DEU supports a bull shift for NC…
  • For now, only NC sees above-normal wind but as DEU picks up wind later into March we will see stronger pressure on SYS price in a time with observed + moderate accum WWW forecasts into week 10-12

• Fundamental market models

  • SYS price vs. futures
    • SYS price and outlook this week support a bull development
  • Futures vs. market models
    • Futures are prices closer to market models and thus that could limit further upside

Weather-trading

• Week 9

  • Since I don’t see a CDC setup in PV, nor in H vs low-pressures, solid WRM-CDC signal in both WRM’s and that its uncertainty for thermal/carbon any bull turn into week 9 is not used for solid long positions
    • => The bull start of the week have limited some of the upside but if we don’t see any fallback then we could see higher prices up to the start of week 10
    • => This suggests 5-10% levels but I don’t like sitting over weekends when we shift into a new WRM period (from CDC to WWW…)
    • => If GFS comes down to levels seen in EC ens mean we are on safer CDC territory into the start of week 10
  • During the week we get the necessary data that can cause a bearish pressure in NC and also DEU towards April
    • Week 10-12 looks safer for short (bearish) positions according to WRM
    • But this is more confident if we see a bull development up to the start of week 10
    • Week 10-12 depends largely on the effect of the WaF (push PV to WWW-Greenland, new SSW, or a strong FSW…)

• Looks to be a bearish potential for the weeks 10-12, but a new SSW (or major FSW) will shift things to strong bull…

  • • => A bull turn in week 9 and into the start of week 10 will lower the risk for short positions
    • => PV positions and strength vs WaF effect into week 9 forecasts set the volumes and timing of short positions (15-30%) for week 10-12 since the WRM’s looks accumulated WWW’ish for weeks…
      • => If PV shifts to more WWW setup all over 60-100% portfolio levels will be used…
      • => If CFS hints of a new SSW verify into week 9 there is a strong bull potential for the last part of March and April

Medium-range: we are closer to a solid WWW period or a new solid lasting CDC period 

• Even if March becomes WWW it does not change the outlook for Medium-term
  • This part will be made statistical with price outlooks when I get a deal with a supplier
  • Working on this…
• 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
    • CFS hints of a new SSW or a massive FSW (same effect)
    • But WaF can also shift PV to WWW position enhancing the WRM-WWW response in week 10-12
  • 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
  • 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…

Hedging

• Timing of hedging

  • 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
    • Late Feb and into March higher WaF supports a CDC turn into late March and April
      • => how this plays out will be crucial for March-April weather, for now, no clear WWW risk seen of the new WaF, and CFS hints of a new SSW that will be mega bull…
      • => WaF increases the risk for a strong FSW
      • => FSW has a dry impact that could take place as the FSW happens before the wet risk is seen into July-August
  • 1 of Oct the UK cable is 100% operational and in 2022 the Nordlink cable increases its effect
    • =>, as we have seen the bull potential on SYS price, is high even if NO had almost 100% reservoirs the prices went mega bull as soon as inflow and wind came down below normal (week 48)
    • 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