Weather-Trading – 10.03.2021 at 22:29

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 “hopes of control”

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

• WRM(e)+PV/Jet+SRA

  • WRM(e)-CDC is effective and EC ens mean looks to follow signals
  • This suggests shifting periods into March and April and thus stable CDC or WWW has lower confidence
  • That supports small volume trading and in case of larger volumes then the positions must take place over some days before closing

• 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 supportive for the WRM(e) outlook
  • Only at extreme WRM+PV/Jet setup can the position be held/taken based on the outer edge of the normal
  • In case of too strong CDC or WWW, the risk is high for “unexpected” forecasts changes or the effect of small WRM-signals could be large
    • MJO supports a CDC setup that is opposite the upcoming WRM(e)-WWW signals
    • It’s not until week 12 WRM-WWW signals MJO supports a WWW turn

• Volatility forecasts – “strategy”

  • As it looks now position should not be made until we have passed WRM(e)-CDC signals
  • Thus, buy signal Wednesday should have been postponed until we move into WRM(e) and WRM-WWW signals
    • => the WRM signals often have the largest effect at endings of their period even if the atmos setup between low and high-pressures doesn’t change that much

• 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
  • This suggests a lower risk for a strong bearish correction for April and that the WRM-WWW response will affect May to a higher degree since we need an accumulated WWW effect to get prices down significantly
    • => The upcoming WRM(e)-WWW effect on PV and Gwh numbers (high vs low-pressure effect) will set the path for Weather-Trading strategies into week 11-12
    • But keep in mind the atmos is non-linear and as long as we don’t see a rock-solid PV-CDC setup the WWW response could be high

• NC SYS price vs. futures

  • SYS price came in strong with high wind and shows that S-NO hydro producers “has control”
    • This limits bearish risk and it looks like we need a longer WWW setup to shift water values down significantly
  • It’s not until early week 11  we see the potential for stronger bearish SYS price development for the futures
    • This is because by then we see more WWW forecasts and Hydbal will come up with higher inflow again
    • But the wind is low for NC and that looks to be for real at the start of the week
  • Also, into April the accumulated WRM(e)-WWW signals effect could result in periodic massive inflow + wind/precip towards/start of April and that will put higher pressure on the May++ contract

• DEU SYS price vs. NC

  • S-NO over DEU on a windy day is a bull signal and limits the bearish effect of forecasts for now
  • This suggests that as long as DEU is higher than NC we will see support to SYS price and accum observed WWW + forecasts must be seen before we see signeficant downward adjustments

• NC spread to DEU

  • For now low inflow, moderate WWW EC ens mean forecasts and strong SYS price supports NC future prices closer to DEU
  • 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
  • Carbon/thermal power is supportive for DEU as it looks now so bull support form DEU could be seen if the WRM-WWW response on DEU is moderate

• 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 outlooks
    • Into next week WWW forecasts will shift the outlook and put 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…
    • Thus, May looks to see a stronger accumulated WRM-WWW effect since a stable dry+calm turn is not expected to take place until late April
  • Thermal and Carbon
    • Speculative Carbon pulls thermal and DEU bull supportive for NC prices
    • Discussion on 50 Euro level and possibly a collapse shows the uncertainty in DEU prices onwards
    • Still, DEU looks higher than NC and thus supportive for NC as long as we see low inflow and only peaks of wind
      • We need to observe WWW and rising hydbal with WWW forecasts to see signeficant downward adjustment

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. Portfolio: 60 MW monthly (1-3) and 20 MW front quarter)

• Week 10

  • Hold positions over the weekend
  • For further short positions, we need confirmation in WRM(e)-WWW effect
  • The bull risk for DEU (carbon-thermal) suggests lower volumes
  • Negativ profit Thursday is expected
  • If WRM+PV/Jet WWW confirmation on Friday sell
    • – 5 MW May, to get a better average price
    • The purpose is to get a modest profit over the weekend and to evaluate WRM(e)-WWW response

• Week 11

  • Should be a stronger WWW response by the start of the week
  • If WRM+PV/Jet outlook confirmed sell Monday
    • -5 MW April
    • May has often lower volumes and larger spread…
  • Profit-taking within Thursday
  • Evaluate strategy for week 12-13 into then week

• 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 and into April 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 SE 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…