Morning Thoughts – Oldinvestor

What we know

  • Production showing signs of some recovery – this will be turbulent
  • LNG fell off another cliff toward 4bcf/d
  • Storage is at a surplus of 423bcf vs 5year average and near 800 vs last year

Amidst the negative impact on the market this week, the storage build is expected to come in at less of a build vs 5 year avg for last week. I almost always invest the wrong direction, and again I’m long against the market. I’m not optimistic at all this week. I’ll keep doing my best to manage my position to keep up with contango.

Basically over the weekend there was a bump in production, then yesterday the inevitable drop in feed gas to LNG export facilities. Of course this has a negative impact on NG pricing. Low prices also act as an incentive to electric power plants to burn natgas when applicable. Overall, with Canadian imports included, production is a bit lower than last year, while total demand is near last year. With the drop in LNG export feed gas, this will be tighten the balance between supply/demand year over year. The latest threat being a drop in LNG is reason enough to expect pricing to be right where it is now.

Will prices for natgas fall further? I think $1.5 is possible, but not very likely. A fellow tweeter posted Henry Hub spot (cash) prices dropped to $1.5 yesterday, but this could also be short lived. I guess the main problem is, LNG doesn’t care what the pricing is here. LNG exports hinge on what is going on in importing countries right now. That dynamic isn’t even about price anymore, it’s about those countries getting back to work and using the gas that is to be delivered. We can only hope the wuflu mutates to something of a myth soon.

My position

UNG – 60% in with an average of $11.73ish

I will remain to hold this position and reduce back to 40% the moment I see my average. I will be patient to see if NG pricing will try to get close to $1.5 before buying more UNG. The next time I buy, I may be buying more than 10%, but I will certainly wait to see if $1.5 becomes a possibility. Good luck