Morning Update Jan 20, 2020

Forgive me… This may not make sense. Have I mentioned I hate taking antihistamines…

What do we know.

  • Production is showing signs of falling

I’m going to stop there, the EIA drilling report showed every region to have reduced production growth from their November report to their December report. This may be the most under recognized, just most significant factor for natgas that will cause a macro shift in the price. Granted, it is winter and production can stall due to winter weather, but not in every region. The next report will be published tomorrow, I will simply be looking for a steady trend to this idea that production is or will be on the decline soon. It is my understanding that production is hard to track. I know the market is still significantly oversupplied, and I see the signs that show production is about to start shrinking. I just don’t know when exactly.

This is taking forever, I’m just going to touch on my thoughts for my position.

UGAZ has fallen drastically in the last year. UGAZ price is nearly 1/4 its Nov peak value. Looking back at 2015/2016, I intentionally stayed away from UGAZ this winter (thus far) for this reason. I knew there was a potential for UGAZ to fall this hard and I’ve learned I don’t want to be stuck in this impossible position. That being said, I’m almost ready to start buying UGAZ. Even if the market were open, I wouldn’t be doing so today. My original strategy was to be all-in UNG by the time NG prices fell to $1.75-$1.9. What usually changes the plan is when the market bounces around and gives me an opportunity to reduce my position at my average or even at a profit. This is nothing new, it can simply call for adjustments to the original plan.

The only real adjustment I’ve made so far is I’ve been able to average down and reduce, allowing myself to get back in at a better price. I now have a choice, do I continue to layer slowly, with 20% of my funds at similar increments as in history? Do I build my long position faster since the price is now lower? It is good that I have today to make that decision. The natgas market is still open, but there is nothing I can do about my position today even if I wanted to.

I don’t have my answer today, not even for myself. I need to get caught up on everything I think I know about what is happening and be ready for tomorrow. I will have my thoughts organized better tomorrow. I will be buying if the price is still down, I do know that.


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