Morning Update – April 29, 2020

Still just hanging in there. I’m ready to step it up a bit on my UNG positioning. From what I’m seeing, it appears production has declined just slightly more than demand. One of the best metrics to use still is the difference in storage build/draw vs 5 year average. This is the chart I keep sharing from RonHenergy.com

EIA weekly Inventory change vs 5yr average at RonHenergy.com

This data is about a week old, but it’s compiled for you and free. As long as storage builds continue to show up below the line, this is a clear indication storage may not be building fast enough in the summer. If 2020 starts looking like 2016, this would be when things start getting exciting for bullish positioning. Don’t forget about the amount of storage that is in the ground vs the 5yr average as well. Present day storage is greater than the 5yr average for this time of year, but it’s much tighter than it could be.

Current storage difference from 5 year average for the same period at RonHenergy.com

There is still a lot of news about oil shut-ins, but there is beginning to be some noise of bullish news, such as demand may pick back up slightly. Chinese demand seems to be back to normal with the exception of international flights. With the US loosening policies on social distancing requirements, this will help; I don’t think it will yet sway the oil market. I’m hearing some news of more bankruptcies here and there. It appears that gas should still be seeing more declines due to cuts in associated gas. I believe it is time to actually increase my long position a bit more. I saw yesterday that Waha pricing in Texas has been improving. S/D balance must be returning to something of a normal market. This should mean the massive oversupply of gas in Texas is slowing more than I expected; time will tell. I am going to go ahead with another increase in my UNG position.

I’ve added to UNG to push my total holdings back up to roughly 31% with a new average of $13.08

My positions:

UNG – 31% in with an average of $13.08

USL – 13% in with an average of $11.41

I’m not yet interested in selling any UNG at $14; I believe if the price does not get to $15 soon, it may not have a chance to do so until winter. I will be watching the two charts above to judge if I should continue wait to see if prices will move higher or if I should start selling sooner. From 2016 to 2019, more times than not, I sold too soon. I’ve proven that I can control the urge to sell too soon, but now I’ve missed some moves because I’ve held the last bit of my UNG position vs selling. I want to believe eventually this small position will still pay off, mainly because I believe the market will switch to under-supplied for a long enough period to drive Natgas prices back to $3.

I wanted to share an update of my DBO trade, I will wait until 9:30est time (market open) to share an accurate account of that trade.

My DBO position as of this morning

Looks like it’s doing well. My share value is still down some, but the calls are decaying at a higher rate than the fall in the price of DBO. Very good.

I’ve been ignoring my USL position, it is down roughly 14% right now. I’m thinking oil must be finding some hope in demand recovery and supply has possibly dropped enough. Today should be interesting since it is report day for oil. I’ll just keep hold what USL I have. This same idea may have gas prices suppressed if oil production cuts are not in the spotlight anymore. Shale grows fast, just remember that. Don’t get too excite about a rally in gas. I am going to wait until late today or tomorrow to see if UNG is going to fall back to low $12s again. I”ll get more there if it happens. Today’s oil report will influence gas prices. Good Luck

Oldinvestor