Morning Update – May 15, 2020

I can’t help but get the feeling Saudi tankers are in play here. 50MM barrels of oil, to be unloaded in the US. I don’t know how much more than is normally sitting offshore, but it is being made to sound like a lot. Probably because it’s a lot. So this is bullish because it puts pressure again on oil storage, causing a surplus to continue to exist and suppressing oil prices (some anyway) and putting pressure on oil production. All that goes back, any influence to suppress oil, will at least be perceived to suppress natgas. That’s my story but it sounds a bit thin…

Natgas production still appears to be holding the the trend of declining output. It’s really quite fast to drop 5Bcf in just 6 months. Of course it seems 3Bcf (over the last 1.5 months) could be related to the pandemic. I’m seeing production cuts still lasting, but also hear of permits in Texas have been increasing for drilling. Some Whuflu related cuts will most likely come back online, but if prices continue to fail due to LNG cuts, the market will find other places to cut production. All the while keeping prices down, volatility up, and options premiums a little to a lot higher. That being said, I’ll continue to reduce my holdings when reaching my break even price, only taking profits on smaller portions, but staying ahead of price destruction.

My position

UNG – 40% in with an average of $12.36

I had been wanting to hold 25%-30% of UNG for a turn around in the NG market, but I’m letting go of that for now. I like to think I was mostly accurate about the pandemic and LNG exports falling. I will always feel like I need more time and more data to a better job of trading. Either way, I’ll take profits and reduce to 0 holdings more quickly this time around. I’m placing a limit order to reduce one of my 10% layers at my break even price of $12.36. The market may just be giving back because of the strong move this week. The oil tanker thing just stood out this morning. We are still waiting to see how LNG exports shape up. From a technical standpoint, I’d say prices have bounced, but it’s looking to consolidate heading into next week. So no reason to make a move yet. I’ll keep my 1 limit to reduce if UNG can just happen to get to $12.36. As for Oil. I’m interested in selling that DBO covered call, but it seems I’ll have to start another account. I’ll check on that, but am in no hurry to change things around just to sell a covered call. I can place that order in my other account again. good luck