This is not winter’s last chance to spur natgas pricing, but cutting it close when considering the forecast. HDD averages are already falling, and another month or so winter will not be a consideration any longer. The recent forecasts (the last couple of weeks) have shown spikes in HDDs, but the maps did not seem to show cold in the right areas to produced HDDs greater than the average. I don’t know weather so well, I just know what I’ve seen in the past. Now the maps look more impressive than the HDD chart. It’s really all the same, because it’s a promise of cold too far out to be an accurate prediction. Being patient none the less.
So much for a breakout from my wedging pattern, as it laughed in my face. Price still matters. With NG prices approaching $1.85, I’m approaching “All In”. I would like to see a fall today and be all in late today. Late today, late today. Emphasis on late today. As in 1 pm – 2 pm Est. time. UNG must fall below $14.4 or I will not buy. If prices fall fast, such as UNG falls to $14, I’ll go ahead and buy if the trend looks to have bottomed there. This scenario is very unlikely given that prices have struggled in both directions above $2. Now is not much different.
Remember, production is still showing signs of stalling. Producers have said over months in the past, they will be spending less on new drilling activities. Every formation that is drilled eventually has a plateau that coincides with how many wells that are actively producing. From what I remember, back in 2017 or so, Appalachian wells turned out to be much larger producing and efficiency gains were huge. Massive even… This surprise factor has nothing left for the market. I believe a bearish surprise will come in the form of either A. pipeline additions in the Permian area, and/or B. LNG market is flooded enough, trouble begins with LNG exports and the US cannot send out enough. Pipeline additions are not really a surprise since we know they are going to happen and soon.
Here is an example of pipeline expansion. This article speaks about Kinder Morgan’s focus on expansion to Mexico and LNG facilities. That being the case, these pipelines may not help gas get into storage, but feed high demand areas of the market. This also puts pressure on the idea if the LNG market implodes, NG prices here could be valued at less than $2.
All this is said as a warning. I’m betting not so much on weather, but that LNG additions this year move along smoothly and production continues to stall or even decrease. If production just stops increasing and LNG continues to increase, prices should stop falling and rise about $2. If production decreases and LNG increases this year, I fully expect $3 by November 2020. I would not bet on that with futures contracts or options. I’m only trying to scrape in 1% at a time here.
With all that out of the way, Low prices cure low prices. Even without a big turn around in this market, there is going to be a lot of back and forth in this range or the next range lower. I welcome the back and forth more than just a major turn, because I’ve always traded the whipsaw better than anything. I will always admit I’m almost always early, but I’ve learned to managed my risk to my satisfaction.
Speaking of my position, still holding 80% of funds in UNG. I hope to take that last step into UNG today. Now that I’ve typed you to death and warned the prices may go lower foreverly, I’m going to just place a limit order to buy with the rest of my funds. Placing a limit to buy UNG at $14.4 with a hair more than 20% of funds. There was a little left over so I’m getting a couple extra shares. If this order takes, I will be 100% in with an average of $15.51 Sorry if I rambled on a bit too much this morning. Good luck
I’m still long and looks as though I may be adding to my position today. Currently at yesterday’s low and we have the rest of the day. That being said, what do we have?
- US production is still weakening
- Canadian Imports are picking up the slack (keeping production high)
- LNG is holding near record highs
- Power burn looks surprisingly high (to me)
- The market has tightened (demand keeping up with supply, but will it last)
- Weather is being weather
- The price (barf)
So much for continuing the trend higher this morning leading up to the EIA report. It is quite common for prices to creep up a little late Wednesday and early Thursday in anticipation of the EIA report at 10:30 Est time. If you’ve never seen it, click this text to go to it.
Weather is not helping at all. I’m not sure if or how anyone can rely on the forecast past 10 days. 11-15 days out keeps toying with the idea it will get cold again. This seems to happen as some point every year and leads people on every year. I’ve learned that sometimes you can go long on the chance weather will flip, this is not one of those times. I’m not counting on weather to help me out.
I’ve hit on this a lot, but let’s revisit production. The market is still oversupplied. Production is expected to weaken soon, if not already. This does not mean the market is at bottom. I believe $2 NG is still a very likely occurrence. I’ll share a drawing I whipped up just now.
Everyone keeps mentioning how the market is tightening up. This is true, but just like a chart that bounces around on the way up or down, the supply/demand balance will bounce around before becoming under-supplied. I honestly believe we have another spell of increases in production. Take that with a grain of salt, because I don’t really know this to be true. I just can’t help but think we are not going to get the breakout we want yet. Production often fluctuates for weeks at a time, and currently the market is swinging toward under-supply, but could swing back any time. I should try to find more info on this.
I’m running out of time, quickly, LNG. LNG continues to be awesome, which leaves a lot of room for disappointment here. All the LNG facilities are running great, until one doesn’t. Just keep this in mind, a bearish surprise could lie in wait here. Something to look forward to would be LNG additions for 2020, though this still doesn’t help us right now.
I don’t have access to much power burn data and haven’t looked at EIA much. I just know it’s very high right now. Ron H also has some info for this as well. I’ve shown winter months to give a comparison of how power burn looks in winter, and right now seems high for the amount of cold we’re seeing in the US.
On to the price. The part I’m not so good at. Daily chart looks to be following the channel and will be headed to $2 soon.
Looking at the 2 hr chart, we also look doomed as well. There is a small chance prices hold here, and get some help from the EIA report. This again is not something to count on.
My real assessment is that NG is headed lower. So why not just short it? Pricing is low enough to be more painful to producers than to my being long a 20% UNG position. Pricing right now should be more painful to long NG traders than to me with a 20% UNG position. Pricing is in a range to fix pricing. Managed money position I mentioned in my Dec 17th post is still going to be near or maybe at a record short ratio of longs vs shorts. I’m building a position. I’m feeding an old habit here that I refuse to kill off. A trader would tell you I’m an idiot, that I need to set and use stops here. Which is probably true, if I did that I might make more money. I’ve also had success by doing exactly what I’m doing and I’ve adjusted my method so much that these days I come up short because I’ve not taken a large enough risk on the trade. This time will be no different. I’ll build up my UNG position, the market will turn, and I’ll make another % on my account; the way I know how.
I still have an order in to add to UNG at $17.05 with 20% of funds. I’ve cancelled it. I’m afraid the market isn’t going to give me what I want ($17.05) so I’m going to adjust here and add 10% of my funds now and wait to add 10% more on a dip (if it happens.) Watch for updates on Twitter.
Update: 10:02AM Est time. I bought UNG with 10% of my funds at $17.17. Currently my average is $17.5. I’ll place an order to sell the shares I just bought at my average of $17.5. I’ll also place an order to buy at $16.93 with 10% of funds.
Buy: $16.93 with 10%
Sell: $17.5 with the previous 10% purchased this morning.
This will help manage the risk on my account if I can get sold and leave some to make money on if the market decides to turn here. I’m fine with going lower, we’ll just have to be patient if that happens.
Waiting for a spark. As for my position, this will pretty much be the theme, waiting… I’ll be waiting for gas to actually make a move toward $2.2 to add to my position or move closer to $2.75 to sell out. I wouldn’t mind $2.5. I have placed an order to add to my UNG position at $17.05 with another 20% of funds. This order is a limit day+extended hours order, allowing it to be bought any time the market is open.
So I got busy at work, back now. Need to make this quick. Weather sucketh, both GFS and ECMWF. Short positions may make another push here. I welcome this, my bad habits could make me some money here if things will continue to get worse just a little longer.
So one might have argued that RSI was on a diverging path from NG pricing the last few days, signalling this move lower. I’ll be watching this some and testing this theory over time from now on. Learning a lot of these new technical terms and how they work feels useful, but we’ll see. There is a man, as evidence, whom I know well enough to know a person can trade solely on fundamentals. I would argue I’m trading on a macro fundamental course right now with UNG. I have a plan, one that is keeping an eye on not just NGG20 contract, but further down the curve to keep me out of trouble.
Speaking of the curve. If you haven’t already, it would be good to learn what’s going on with the next 6 months of contracts, and be aware of their movements. Learn what backwardation and contango mean. It doesn’t have to make sense right now, but it will help in the future.
Ok, so that’s it for now. I will not be stopping out of my position. I have to order in to buy at $17.05 on UNG with 20% more funds. I started holding this position on Dec 17, and you can read about my reason for buying on the Dec 17 post.
Seems everyone is looking for a reason to go long. Year over year S/D numbers look relatively good, mostly thanks to reduced production numbers and continued growth in LNG exports. All that is needed now is some cold weather to send prices higher. I’m still on the fence with going long. I think I’m going to go ahead another small UNG position since short positioning is so high, pricing can’t fall a tremendous amount lower.
Comparing NG continuous chart from late 2015/ early 2016 to now, we see speculator positioning is similar between these dates. The lowest point was the last posted report. This tells me it’s relatively safe to go long. This is where I’m hung up (on positioning). Fundamentals will work themselves out.
the NG continuous chart above, when it bottomed out on March 4th, 2016, this was NGJ16 contract. Right now NGJ20 contract is the lowest priced contract already at 2.186 (at the time this screenshot was taken). So keep in mind Jan and Feb contracts closed at or above $2 (Jan currently priced at 2.315).
So going long here could still be very hazardous, as shown above. When compared to 2015/16, I have NG pricing start the chart similar to current pricing (2.3ish). This is a very good comparison because the price of NG fell all of 2015 as it is now, and is near the similar pricing at a similar time of year. This is all to show how much further UNG can fall from here.
So when NG was around $2.3, UNG was near $45, and as NG falls to $1.611 in March of 2016, UNG falls to almost half its value to $23. This is a huge hole to dig out of. If you scroll back up to COT (managed money) positioning, it shows shorts are the strongest in October of 2015,. Even though short positions lighten up, the price continues to fall. Current COT positioning is the best thing the bulls have going for them, but it isn’t a magic bullet. It does tell me that as long as COT positioning is at this point, and has shown such persistence to take this stance, we can’t go a lot lower. There just isn’t enough new short positions to push prices a lot lower.
So on a macro scale, I’m about to go buy UNG with 20% of my funds. This is quite possibly the most reckless position (due to size) I’ll have taken on since Nov 2017. I hope I dig myself a hole here to show how I’ll get out of it with a profit. We’ll see. I hope today’s post isn’t too convoluted.