Morning Thoughts – Oldinvestor

I think V/X is the play of the year here. NGV20/NGX20 spread is 45c apart. IF…. If LNG is really set to recover by September, then why wouldn’t V/X close the gap? October contract expires on 9/28/20, which is week 40, and this is in the middle of a time when South Central storage will build strongly on average. So this seems to be the point where the market is the most nervous.

I have said before and stick with this; storage will not reach max capacity, but it is the threat of getting too close that drives prices down. I am slowly backing away from the idea that South Central storage is going to cause major bearish problems with natgas pricing. Searching ‘LNG cancellations” still doesn’t show me any new news in google. That doesn’t mean anything except that I haven’t heard anything new. I still plan to keep my positions unchanged, with one exception. I decided to add another KOLD covered put to my account.

As for fundamentals…. Production is

Production as of 7/28/20 by HFIR latest free article

Production is moving more sideways. I believe some producers are waiting a until LNG news really helps out pricing to bring some production back online. Production is still down 4bcf/d from a point that would arguably be where natgas production might be if the pandemic were never brought into the picture. LNG was still headed down a dark path pre-wuhflu, but it is also arguably down more than 4bcf/d from where I would put it without the pandemic.

Now, obviously is more about who is going to bring what back online and when will be the key. I’m going to say producers could bring up to 4bcf/d of natgas back online, but it is unknown to me as to who and when. We know LNG is good for nearly 6bcf/d in additional capacity from the current 3bcf/d of exports. At this point, I expect an increase of roughly 3-4bcf/d of demand increase from LNG exports, putting total LNG demand at 6-7bcf/d.

Weekly Inventory Change vs 5yr avearge weekly change at RonHenergy.com

Storage seems to be hanging in there based on EIA inventory reports vs their 5 yr average baseline. For example last week was a build of 37Bcf and the average is 37, so this would indicate a fairly tight market with the current heat in the US. So this all leads back to that IF at the top of the page. If LNG increases by 3-4bcf/d and production either chooses not to or cannot increase by this same amount, then pricing lean bullish from here. As for V/X, I’m still not a spread guy and may never be. I’ll stay closer to what I know for now.

UNL – 80% in with an average of $7.4

BOIL – 1 covered put

KOLD – holding my 55 strike covered put and added 70 covered put yesterday.

Covered put positions as of 7/28/20
P/L as of 7/28/20 on covered put positions

So I chose to take on another KOLD covered put. I sold a 70 strike put this time so I can cover it in the event that NG prices do fall one more time and sends KOLD into an area where I’ve not been able to short shares. I’m shorting it now, protecting my short shares with the put and can exit the put any time and just be short KOLD shares with the profits from the put rolled into the share position, essentially giving me a short from that point forward. Same as the BOIL trade. I really like this trade because I will make $300 in the next 4 weeks even if the NG prices don’t fall. And even if they do fall and KOLD goes to 70, I still make $300 and get to cover the put and short KOLD directly from that point forward. This is by far my favorite plan from this point. I could have done this a few times in the last couple months; so I’ve missed out, but I’m learning and I have a new trade that I really like for the right moment. And $300 against $4000 in margin is a sweet 7.5% gain in 24 days.

As for the rest of my positions, I’m waiting on time and for something to happen. Good Luck

Oldinvestor