Morning Thoughts – Oldinvestor

This helps tremendously. Helps me anyway.

NGZ20 seasonality chart.

We see here December contract is in the upper range that previous December contracts have been in for the last 5 years, with the exception of 2018 breakout. Storage was around 700Bcf of a deficit to the 5 year average at that time, with a winter storm threat. Storage right now is still 400+Bcf of a surplus to the 5 year average. RRRRR, wordpress is screwing up. going to post this and then update in a moment with more…

Weekly storage vs their respective 5 year averages at RonHenergy.com

So with this in mind, LNG is going to help close the gap this winter, but how much will depend on production. To help with this, I want to look at what Oil is doing. I believe associated gas will be the biggest contributor to how much natgas production recovers in the near term. I want to focus on Texas, but not sure if I will find what I am looking for.

Frist, imports are down, so this is helpful for Oil

Weekly Oil Imports to the US at RonHenergy.com

Here is a good one to factor in, Refinery consumption.

Crude Oil demand from Refineries in the US at RonHenergy.com

Storage is of course needed

Crude Oil storage in the US excluding Special Petroleum Reservse at RonHenergy.com

And lastly, since i can’t find Premium for free and don’t really have time to dig further, Overall Production

US crude oil production at RonHenergy.com

I can only assume that associated gas production is being suppressed considerably with oil production. This last chart does not tell us how much of this production is natgas rich. I do know production of gas is down heavy in Texas, and that’s as close as I can get to proving anything without a subscription to regional data. Doesn’t that suck….

updating the post again and my follow up will come momentarily…

So I don’t have all the variables. The general idea here is, production has taken a hit and may be just starting to bounce back in Oil; rig counts were also up last week by 10 I think, that’s a pretty clear sign. Imports are still down heavily and storage is being consumed, and that is good news. These charts above point to Oil going back to increasing oil production before the end of the year.

So this, though a bit vague, should support my theory that associated gas will be increasing by the end of the year. I also know that gas coming from Appalachia has not decreased much since March 2020, but drilling has… Damnit, I forgot about EIA drilling report. It will have more data that I didn’t cover, by region.

https://www.eia.gov/petroleum/drilling/

Go here and click on the “full report”. It shows most associated gas was the bulk of the production cut for natgas, but also shows rig counts down in dry gas areas too. It always takes a incredibly long time for production to start falling after rig counts drop. Also, in the case of Appalachia, it must take that much longer for production to drop, because they either have fracing crews still running or the wells are tremendous gas producers. Appalachia hasn’t had a real decline in production in 10 years. DUCs will play into this, but I think the biggest part would be the production capability of each well is massive.

So…. If production is to recovery much in the near term, it will come from oil rich areas since most dry gas production never really decreased much, and will not have much room to increase again. Since Oil looks to be heading down a path to recovering production… Though it will take a while, associated gas production will increase some with oil production.

One that must happen is planes must return to the skies to allow demand to return to what it was before in oil. The sooner this happens, the sooner oil production races back to growth. We know this will be directly affected by coronavirus efforts.

I’m not saying that natgas will not reach $4 by this time next year. Not am I insinuating that it would be impossible for gas to reach $4 some time this winter. With storage in the surplus it is in, there would need to be quite the bullish anticipation by markets to think storage is going to run low to reach $4. Since markets have been soooo slow to react, any move higher, to me, feels like just trend following. The reason I am still long in UNL has to do with it being spread over 2021 contracts, and will stay invested further down the curve like this that I do believe in under priced for what is to come. I feel far less paranoid about being short on BOIL. about that…

UNL – 50% in still from $7.4 and holding

BOIL covered puts

Covered puts P/L as of market close 8/26/20

I remain steady with my investments as they are. EIA report today at 10:30 est time. Good luck

Oldinvestor