Morning Update – April 14, 2020

Go long leading up to big talks, such as OPEC+++++, then short it once the meeting has happened. I heard this, at some point in the last couple of weeks, from Samir Madani. This was not the exact message, and I would interpret this to mean go long on the hype leading up to the meeting, then be much more cautious of reality. That is my emphasis of oil right now. The news of oil cuts is always well received in a market that is over supplied. But so many games are played with numbers, and I either don’t have the data or the time or both… So playing off the hype is easy. My theme is stay long because of exceptionally low prices, but keep my positions small. The reality is, demand is still being crushed and these cutbacks were only formalizing what exporters already saw coming, forced cuts. Also, Saudi Arabia sent out as many tankers as possible before the meetings in an attempt to secure whatever market share they could before the proverbial shit hit the fan.

As long as the coronavirus is “in play”, for a lack of better words, global demand is going to suck. Therefore, production is going to decline further, prices will stay suppressed because everyone needs to sell oil to pay their credit tab with the banks. Bankruptcies will be on the rise and people will be out of jobs. At least until individuals, businesses, economies really start moving again and increase demand back to where it was in 2019. The real damage is just beginning to show up for US operators (oil and gas producers) and well service companies.

I am still not any closer to how all this will affect natgas in the long run. I mean, I know that this spill over from oil always affects natgas. The main idea is that a reduction in oil output equals a reduction in associated gas output. But we still don’t have a strong grasp of the demand destruction picture.

In this article from HFIR, they share some of the destruction that is clear in the Industrial sector; nearly 2 Bcf/d lower than last year. They are also showing production holding for now. They mention an increase in production from the northeast region of the US. “We are seeing a drop in associated gas production from Mid-Con and Texas, but Northeast has actually boosted production higher over the last week. Permian gas differentials have widened pushing gas prices in the Permian close to zero again.”

Well I have a call, I must cut this short.

My positioning

UNG – 31% of funds invested from $13.41

USO – 5% of funds invested from $5.03

I still have no plans to add or reduce the position. I am selling calls against them. I have set up a second service in to view the outcome. I’m trying to keep my positioning the same as my main service, I”m just selling calls in addition to my shares held. Gotta go, Good luck