Weather-Trading 02.03.2021 at 18:37

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…

• The WRM-WWW risk keeps coming back in GFS even if EC ens mean does not follow up so far, but that can change…
  • The atmospheric setup in EC and GFS ens mean is in line with WRM-WWW setup but PV prevents so far the Gwh’s to rise significantly
  • That’s related to that the lows have low vorticity and does not “spin-up Gwh numbers”
  • A new forecasted CDC-dip towards the middle of March can change back to WWW as WRM-WWW response can trigger PV in all layers to shift to more WWW-impact on Gwh/Twh and not just low and high-pressure setup…
• Thus, the upcoming WRM-CDC days is an opportunity for going short (bearish) reader than bull since the WRM-WWW period 10-11-12 seems dominant and will have an impact on Hydbal, wind, inflow, S-SE/DK prices and even thermal power in the close range..,.

Weekend risk

• Depends on the setup in PV up to Friday but over the weekend, we shift to WRM-WWW so it looks like it will be high risk if EC ens mean shows a CDC setup with “low-pressures” towards Friday

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

• Hydbal/Inflow/Wind/Temp/Flow

  • EC ens mean have shown bull support and have pushed prices up 4-5 Euro as inflow, wind and temps look to come down
  • For further support, we need lasting CDC forecats
    • But, GFS keeps showing the WWW risk for the WRM-WWW days and I will not be surprised to see a shift in EC ens mean towards WWW…
  • GFS Opr shows that with the current PV set up there is still potential for massive WWW low-pressures that affects NC and DEU during WRM-WWW days
    • Thus, as we pass the WRM-CDC days we will most likely shift into a stronger WWW setup with possible rising Hydbal, inflow, wind and precip above normal in NC+DEU which will also limit the bull support form Spot areas like SE34, DK1-2…

• 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 gets in the WRM-WWW period…
    • But GFS does show potential for solid WWW lows that can show up in ens mean => observed…

• NC prices

  • SYS price looks to have a bull potential when inflow comes down into week 9 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 + forecasts
  • 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 during calm days with lower inflow
    • 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
  • A WWW path during WRM-WWW week 10-12 will also affect Spain and France => bearish impact in thermal and DEU

• 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
    • Calm days will be supportive of SYS price but is periodically high and thus we see limited support after the current bull lift…
  • 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 + WWW forecasts into week 10-12

• Fundamental market models

  • SYS price vs. futures
    • SYS price and outlook this week support a bull development
    • Well, after the last bull development that’s not so supportive any more
  • Futures vs. market models
    • Futures are priced over market models and thus we see a bearish impact
    • The bull lift last days seems to be over and needs support for stable CDC forecasts

Weather-trading and hedging

• 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 and the turn into week 9 I suggest being careful thinking more bull development
    • => The bull start of the week have limited some of the upsides but if we don’t see any fallback in EC ens mean then we could see higher prices up to the start of week 10
    • => Based on WRM and GFS response I call off any bull thinking from Wednesday
    • => Week 9 will be used for short positions and into the start of week 9 we could see a more stable WWW turn
      • This depends on PV and WRM response up to Friday
  • 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 and current prices
    • Week 10-12 depends largely on the effect of the WaF (push PV to WWW-Greenland, new SSW, or a strong FSW…)
      • => For now the bull turn lately, market models and SYS price, wind outlook and possible WRM-WWW effect for up to 3 weeks support bearish setup
      • => The FSW and SSW fade off for March…

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

  • No proof of a new SSW or FSW in March: the signs fades off…
  • Thus, March trends WWW’ish and any FSW/SSW is not expected to be seen until after more low-pressure weather into the second part of March

• Hedging

  • The WRM-WWW period week 10-12 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

Medium-range: we are closer to a solid WWW period and then new solid CDC periods 

• 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

  • In the short time frame, prices will most likely come down
    • Thus, If planning to hedge we are close to the time of peak prices
  • 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