Morning Update – April 24, 2020

I grow more cautious of this potential breakout each day. I think they key is Texas, and they have ample amounts of gas being flared. I don’t know how much, but we’ve heard about pipeline constraints for over a year. Even if oil is cut back and regional pricing in Texas recovers, that will be all it is. Regional gas prices will recover and overall gas supply could remain higher, even as oil production falls. Some associated gas will get shut in, but we still don’t have a good idea of true capacity. Many of these oil wells are also reaching latter life stages and produce a higher ratio of gas to oil (from what i hear).

If I were trading UGAZ (which I’m considering getting back into with a small amount soon), I would be all out right now. Amidst all the chatter and bullshit with USO, I still have quite the confidence in UNG. Considering Oil has moved to serious extremes, USO has survived, which is more than I can say for XIV. I will continue to hold a little UNG, even if it does suffer from a small amount of roll decay. I need to update (possibly correct, not sure why) my spreadsheet for my UNG trades. I was looking at it, and I’ve gotten quite good at trading a losing ETF. I started trading UNG at $19 and somehow I’m making a profit at $14. It seems I’ve done nothing but learn to trade the losing side for the last 4 years. It’s not something to brag about, but it lifts my spirit to see that I’ve done this well in this market on the long side.

Speaking of USO

USL (teal) Chart with DBO(blue) and USO(purple)

I wanted to show this comparison between USO, USL and DBO. It appears all three ETFs were on similar paths until prices started to fall and USO is leading the pack because it is (was) most invested in prompt contract, and the prompt contract for anything is usually makes the most extreme moves. USL funds are spread over 12 contiguous contracts, and DBO is invested 8 to 9 months down the curve in February of 2021. USL should be a little more exciting than DBO because a small portion is invested in prompt contracts. This could hurt sting though if even 5% of the funds of that ETF are invested in a contract that goes negative. I lean a little more toward DBO because it appears it has almost the same strength as USL, and without the current hazards of the prompt contract.

All this talk about Oil related ETFs, I’m still not so inclined to invest in them myself. I did sell 1 covered call against 100 shares of DBO in one personal account. Premiums are good and as just stated, it is invested in Feb 2021 CL contract. This puts it out of immediate danger and oil will have to continue in quite a big way in order to hurt much in DBO.

Crude Oil Inventories excluding SPR at RonHenergy.com

My reason for still being super cautious of Oil is this. Storage isn’t quite full, but with demand still being at record lows, like 30 year lows, I don’t know….. Few airliners in the sky, probably 0 cruise ships hauling anyone but crews around, and far less people travelling to work, employed or not… You get my point. Storage is filling at an accelerated rate. Even Feb 2021 prices could fall another 12% fairly quickly. I say 12% because thats about the extent of protect my covered call adds to my 100 shares of DBO. Well I sold a $4 call for protection to $3.67 on my shares. Ok, I’m beginning to ramble on.

My Positioning:

UNG – 25% invested with an average at or better than $13.28

USL – 13% invested with an average of $11.41

I actually have enough money in my example account to sell 1 covered call against DBO, I would need to apply for options trading in that account. I’ll think about that. As for UNG, I’ll keep my same strategy. Placing a stop on roughly 10% of funds invested in UNG at $13.3 for the day and that is all. I am not interested in buying more yet and not really willing to let go of anything with that one exception. There is obviously a good chance this stop will get triggered today, because the price is already close to this figure. Just be aware I could be down to 15% of funds invested in UNG by the end of the day today. Good Luck

Oldinvestor

How much gas production does Texas really have?