Weather-Trading 04.03.2020 – at 08:44

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
    • => The lows hit NC but precipitation is limited, wind is significant while temps shifts below/over as low-pressures passes NC
  • That’s related to that the lows have low vorticity/convection core and does not “spin-up Gwh numbers”
• A new forecasted CDC-dip towards the middle of March during the WRM-CDC days can change back to WWW as WRM-WWW response (week 10-12) can trigger PV in all layers to shift to more WWW-impact on Gwh/Twh and not just low and high-pressure setup…
  • => for now there is potential for a CDC dip for 1 week
• Thus, the upcoming WRM-CDC days is an opportunity for going short (bearish) rather 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..,.
  • As for now, we could still see more CDC shift so over the weekend there is a possibility for better prices…

Weekend risk

• The PV setup do show possibilities for a CDC setup, even the signal is weak
• WRM-e looks on track and an updated version (will be published soon) shows WRM-CDC setup up to Tuesday week 10
• Thus, as the forecasts look now there is a bull weather risk over the weekend
• Temp: The passing lows and its large scall flow pulls polar air masses over NC and southward and that could set up some cold NC-high pressure

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

• Hydbal/Inflow/Wind/Temp/Flow

  • Lower inflow into week 10 looks realistic since temperature comes down below normal
  • The large scale lows pull cold polar air southward and in such prosses, there is potential for local NC high-pressure development
    • => We could see over the weekend some CDC development in forecasts so after the bearish correction seen the last days we could see further support
  • However, wind looks strong in periods and also is coming up in DEU but WRM-CDC days will most likely calm down the forecasts over the weekend
    • => Thus, there will be some bull support form Hydbal/Inflow/wind/Temp/Flow over the weekend after a new possible correction down today
  • But into week 10-12 we will see rising levels all over and that will put pressure on NC+DEU spot prices and futures

• WRM+PV/Jet+SRA

  • The WRM-e risk verified and only GFS shows a WWW-Gwh setup for now
    • => Still possible that EC ens mean shows a fallback overnight to stronger WWW
    • That’s seen now but should shift back to less WWW and more CDC’ish setup within some days
  • 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 (updated Thursday..)
    • There is still a bull potential in a weather forecasts shift over the weekend as the WRM-e and WRM suggest
    • WRM-e shows CDC effect up to Wednesday next week…
  • Then the WWW risk kicks in for 2-3 weeks
    • Week 10-12 still looks to be WWW affected and the last GFS and partly EC response shows that WRM-WWW signals look for real

• NC SYS price and futures

  • 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
    • The cold setup seen in EC Opr and some GFS runs can be seen over the weekend in ens mean supportive for SYS price
    • Into week 10 DEU sees high wind but WRM-CDC response will calm that down and cause a shorter windy period before back to calmer again
  • NC is sensitive to WWW weather and 2-3 weeks of solid WWW into week 10-12 it 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 a 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
    • But we have seen before that NC can decouple DEU completely…

• DEU SYS price and futures

  • 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
  • But into week 10 there is a bull risk in forecasts as indicated by the WRM

• NC spread to DEU

  • There is some support on SYS price later week 9 and start of week 10 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 the wind 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…

• Fundamental market models

  • SYS price vs. futures
    • Looks to be a neutral outlook after the correction down
  • Futures vs. market models
    • Futures and market models are priced more or less the same so a neutral outlook

Weather-trading and hedging

• Week 9-10

  • The market came down on less stable CDC hints and some strong low-pressures causing accum WWW’ish
  • But the WRM-CDC signals and especially WRM-e supports a CDC shift in ens mean over the weekend and thus we will see more weather support as wind and temps come down in ens mean
    • The windy start of week 10 in Germnay will be a short peak before we see calmer condition again
    • It’s not until Wednesday week 10 the WRM-WWW response is “safe”
    • Thus, I am neutral over the weekend if we come down more today

• Week 10-12

  • Week 10-12 looks safer for short (bearish) positions according to WRM
    • I expect a bull development over the weekend but does not bet on that
  • Week 10-12 depends largely on the effect of the WaF (push PV to WWW-Greenland, new SSW, or a strong FSW…)
    • => For now, SYS price, wind+Hydbal+Inflow outlook and possible WRM-WWW effect for up to 3 weeks support bearish setup
    • => The FSW and SSW fade off for 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
  • But, into week 10 there is a bull potential after the last corrections down so it looks like we see higher prices again

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
  • Keep in mind that statistical March is never signeficant wet nor dry so forecasts tend to shift and low-pressure has not signeficant wet effect…
  • 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
  • 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
  • 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, but its hope for higher prices at the start of week 10…
  • 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 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