Morning Thoughts – Oldinvestor

Yesterday was a blast. The market ran up and I held on. However, I’m ready to reduce my UNL holdings. I do think the market has shifted in mentality, but only so much can be sustained.

I would think that if the market is able to compete with the 5 year average in regards to storage builds, that U and V contracts would start to get pulled above $2 mark. Even with current storage at 3215Bcf or 436Bcf higher than the 5 year average, LNG increases will start to catch current storage up to the 5 yr. Granted it will take some time to destroy a surplus of 436Bcf. Josh Heller is good a pointing out to me an example like it would take 200 days at 2.18Bcf/d of better than average demand to catch the 5 year average. That would be around the beginning of March.

So can LNG or another demand category increase more than supply well enough to draw and extra 2bcf/d or more over the 5 year average for the next 200 days? That would be like assuming LNG exports will get a boost and production will just sit tight and not increase through winter. I am highly cautious here. The LNG picture globally hasn’t improved that well yet, but could slowly. You’ve also got a lot of LNG production looking for a home. I’m pretty scatter brained right now. My thoughts are hard to keep straight right now.

Here it is:

1.) LNG is improving slightly, but can only improve so much as the LNG market was already headed into trouble with an oversupply situation before the pandemic hit. Everyone already knew this, and that has not changed. It will improve in the near term, but by how much and for how long I don’t know. Does anyone know?

2.) Production is down, but has the power to bring wells back online with a little work and production could be restored to match increases in LNG to a point. I don’t know how much production could pull out of the hat by say next month, just by turning the faucet back on… I do know that production couldn’t out perform LNG if exports where to go back to 8Bcf/d. So LNG is still the leading factor.

3.) Prices are spread out like crazy, the market is already pricing winter closer to $3 and until storage is proven to be swallowed up by demand outpacing supply, $4 is out of the question. Unless you want to bet on a blizzard of a cold winter, in that case you may as well head down to the casino.

There. That was better. I think I’m positioned just right for myself for the potentials that could be derived from my previous 3 points here. Prices could spur soon (as soon as LNG picks up). But prices will be limited and winter pricing is already substantially higher than prompt pricing.

My positions

UNL – 80% in with an average of $7.4 I’m going to reduce by 20% now at $7.98

Covered puts as of 7/29/20

I’ve considered rolling out my 55 strike put on KOLD to 9/18/20 expiration. I’ll have to think on this some more. For now I’ll just reduce UNL to 60% holdings. Good luck

Oldinvestor