Morning Update – May 1, 2020

Loads of oil wells being shut in. Many details in the following article.

In the article, they are confirming what I’ve said before, that when you shut in a well, sometimes it is not capable of just being started back up. Someone had said stripper wells were at highest risk of being shut in. This may not be true. Sometimes stripper wells are the least concern, it is good for them to slow down. They are using secondary lift methods, like sucker rod pumping. Stripper wells fill the well bore with oil slowly, which is why the pump slowly. Some of these wells may die if they don’t flow them, but many will simply fill with oil, waiting for the pump to turn on again. Wells with heavy fluids like asphaltines and waxes, I believe are the wells of biggest concern. they require constant assistance to keep the well alive and flowing. Once some of these wells shut in, there may be nothing that can be done to bring the back online. A new well would be the only way to get to the same reservoir.

It should be taken notice, there is plenty of money and equipment always ready to produce quickly. I may mention this many times, don’t get too excited, shale production is quick to recover; with storage greater than normal, there won’t be a surge in pricing unless storage is below average and supply is not enough. Keep that in mind with oil or gas.

It would appear that shut-ins are having a positive effect on oil and gas pricing. Though my USL position is still behind, it is making up some lost ground. If I were holding enough USL to sell a call against the position when I bought the shares, I might even be at a profit right now. 2 hours from the time I’m currently writing this, the market will open and I’ll share an update of my DBO covered call trade.

As for Natgas, there is not serious offsetting production cuts that so far beyond demand cuts to take gas prices above $3. I’m ready to reduce UNG. I have an order in to reduce at $13.95. This reduction will bring me back to 25% in, if the order fills.

My positions:

UNG – roughly 37% in with an average of $13.08 – order in to reduce back to 25% – order at $13.95

USL – roughly 13% in with an average of $11.41

Gas is all over the place this morning. My guess is lots of news of shut-ins, bankruptcies, companies reducing spending, LNG cargoes being cancelled. Probably some speculation that summer is going to be mild, so power burn will suck… This might be a good day to day-trade, but not for the working class. I’ll stick to my sale order. If UNG swing above $14 today, I’m going to consider another reduction down to 10%. We’ll see, I’m comfortable with my current plan to reduce. I may get busy at work, and not learn anything new to persuade me to sell down further. good luck


Update on my DBO trade