Weather – Trading at 15.03.2021 at 08:45

Main outlook

The “Weather-Trading” strategy will be on stable, lasting C(W)DC or W(C)WW 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 mixed WRM periods, strong SYS price and DEU, current Hydbal and statistics show that risk for solid WWW that push the market strong bearish is low, and that WRM-WDC periods will offset the periodic bearish pressure. The lack of lasting stable W(C)WW or W(C)DC signals supports small scale trading based on weather. But, as long as Hydbal stays around normal there is a stronger bull potential into March/April during WDC periods. A solid bearish risk does not look for real before April, and that can be monitored.

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

• WRM(e)+PV/Jet+SRA

  • WRM(e)-WWW looks effective and thus we could see stronger WWW forecasts into the week
  • But from Thursday its a CDC/WDC risk is seen and thus the forecasts will dry up and calm down

• 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
  • For now, there is some stronger WWW risk between 20-24(6) of MArch into this week’s forecasts that could trigger some bearish pressure

• Volatility forecasts – “strategy”

  • Closer to a new WRM period we could see some mixed indications
  • Since we see shifting indications during the week bearish weather-positions should be limited as the outlook is now
  • If solid WWW impact we should see that by Wednesday

• 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 futures to a higher degree since we need an accumulated WWW effect to get prices down significantly
    • Thus, any bearish correction this week will be mostly based on forecasts and not observed WWW/inflow/SYS price
  • There is a possibility for solid WWW between 20-24(6) that could cause observed WWW before the WRM(e)-WDC days start to calm and dry up forecasts
    • => We could see a new peak inflow after 26 of March in case of effective WRM-WWW

• NC SYS price vs. futures

  • SYS price is strong even with high wind and shows that S-NO hydro producers “have 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
    • There is a bearish modest risk for the 20-24(26) of March but the impact will be limited if the WRM(e)-WDC days kicks in shifting the outlook into week 12 to WDC/CDC
  • Thus, for now, SYS price support a bull future development

• DEU SYS price vs. NC this week 

  • Deu looks modest windy so still strong prices and strong wind in NC is not seen in forecasts until next week
  • Thus, there is not a bearish risk this week from low DEU prices and as we have seen NC do handle windy DEU-days very well

• NC spread to DEU

  • For now low inflow, moderate WWW EC ens mean forecasts and strong SYS price supports NC future prices and also the gap to DEU
  • But, into the week both NC and DEU will most likely see stronger WWW forecasts and that could push NC lower DEU
  • 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

  • Futures vs. market models
    • Market models support a modest bull development after the bull correction the last days
    • If EC ens mean shifts to + 3 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
    • 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

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 11

  • Too strong SYS price vs futures vs NC-DEU SYS price/gap supports a bull developemnt
  • The observed WWW is not until the late part of the week so the bearish correction will be based on forecasts only
  • This suggests closing the positions into the week if we see a dip down since the upcoming WRM(e)-WDC period will dry up and calm down the WWW setup seen in forecasts…
  • Wednesday weather forecasts and WRM outlook will show if the WDC risk over the weekend is likely

• Week 12-13

  • Start fo week 12 could start bull before a modest bearish developemnt
  • Even if we see Hydbal up 3-4 Twh the gap to DEU is large and as long as DEU sees periods of calm winds there will be a bull risk since weather statistically is not that lasting stable WWW in March-April
  • How the WRM looks into April and the FSW will be an important part of bearish weather thinking and that will be seen into week 11-12

• 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 period since the risk is on WWW side

Weather-trading and hedging: medium-range

• Even if March and into April becomes CWW 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…