Morning Update – May 4, 2020

Demand has fallen off a cliff; this is due to a drop in HDDs. A drastic drop, at that. There is more coming though. It would seem this is the best and worst time for cold to linger in the US to effect natgas demand. In a way, it’s the best time for demand to surge, helping offset the drop in demand due to the WhuFlu. At the same time, the major boost in HDDs disguises the drop in demand due to the WHOflu. I don’t really care to blame Chine for Covid19. I just prefer to say WhuFlu or WHOflu. It has a nice ring to it…

Anyway, with the drop in HDDs, back to the 10 year average, demand shows a major lacking in Industrial, Res/Comm, and in Power Burn. The market still gapped up last night; it would appear some traders are forward thinking. I can only imagine cut backs in production and news of bankruptcies and risk of further bankruptcies is is weighing on traders’ minds more than lack of demand. With the current declines in production, and potentially more declines that are coming this month, this will out ‘decline’ demand destruction in the long run. By ‘in the long run,’ I mean anywhere between next month and next year. It doesn’t really matter at this point because the major damage is already started (for producers) and will not stop until prices recover above $3/MMbtu. With most companies switching to survival mode (major cut backs on funding for new projects, and focusing on minimizing costs, just producing what gas they have), this will drastically change next year for natgas prices. I have not the tools or the time to process that kind of information. I can say with confidence that is there is a way to wipe out covid19, even with economic damage that has been done, 2021 natgas is already worth $3+. This is not the only way to bet on natgas prices, but it seems covid19 is the most profound perspective on life and everything in it right now.

I don’t have a clear point to my message today other than HDDs are disguising the true drop in demand. Demand normally declines this time of year, but the drop I’m seeing more than that. If sun spots and ocean temps are finally allowing us to have more mild summer in the US, demand will continue to be a problem for gas prices this summer. I welcome this idea, it pressures producers to cut more on spending, leaving the door open to a long position this winter and next year. Shale producers always find financial backing somewhere and are quick to recover output of natgas. In the mean time, I’ll be watching for my UNG position to fluctuate in this lower range until we find a way to crush the WhuFlu or live with it…

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

I’ll have an order to reduce UNG back to 25% in at $13.95 again today. I’m not interested in adding to UNG unless it shows signs of falling toward $12. USL is just going to sit there a while it seems. Good luck


I feel like I should be managing more trades right now, but I’m just not in the position to do this. I know there are some good trades I’m missing out on and if I were more active on these trades, my account would probably be in better shape.