Morning Update Dec 19, 2019

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.

Oldinvestor handywork using Paint! Oversupply example.

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.

LNG consumption at RonHenergy.com
LNG export facilities – planned additions at RonHenergy.com

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.

NG demand for Electricity Generation at RohHenergy.com

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.

NG1 Dec 19, 2019 on Daily chart at Tradingview.com

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.

Oldinvestor

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.

Current Orders:

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.

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