Morning Update Jan 24, 2020

This is not winter’s last chance to spur natgas pricing, but cutting it close when considering the forecast. HDD averages are already falling, and another month or so winter will not be a consideration any longer. The recent forecasts (the last couple of weeks) have shown spikes in HDDs, but the maps did not seem to show cold in the right areas to produced HDDs greater than the average. I don’t know weather so well, I just know what I’ve seen in the past. Now the maps look more impressive than the HDD chart. It’s really all the same, because it’s a promise of cold too far out to be an accurate prediction. Being patient none the less.

NGH20 on 2hr chart at Tradingview.com

So much for a breakout from my wedging pattern, as it laughed in my face. Price still matters. With NG prices approaching $1.85, I’m approaching “All In”. I would like to see a fall today and be all in late today. Late today, late today. Emphasis on late today. As in 1 pm – 2 pm Est. time. UNG must fall below $14.4 or I will not buy. If prices fall fast, such as UNG falls to $14, I’ll go ahead and buy if the trend looks to have bottomed there. This scenario is very unlikely given that prices have struggled in both directions above $2. Now is not much different.

Remember, production is still showing signs of stalling. Producers have said over months in the past, they will be spending less on new drilling activities. Every formation that is drilled eventually has a plateau that coincides with how many wells that are actively producing. From what I remember, back in 2017 or so, Appalachian wells turned out to be much larger producing and efficiency gains were huge. Massive even… This surprise factor has nothing left for the market. I believe a bearish surprise will come in the form of either A. pipeline additions in the Permian area, and/or B. LNG market is flooded enough, trouble begins with LNG exports and the US cannot send out enough. Pipeline additions are not really a surprise since we know they are going to happen and soon.

Here is an example of pipeline expansion. This article speaks about Kinder Morgan’s focus on expansion to Mexico and LNG facilities. That being the case, these pipelines may not help gas get into storage, but feed high demand areas of the market. This also puts pressure on the idea if the LNG market implodes, NG prices here could be valued at less than $2.

All this is said as a warning. I’m betting not so much on weather, but that LNG additions this year move along smoothly and production continues to stall or even decrease. If production just stops increasing and LNG continues to increase, prices should stop falling and rise about $2. If production decreases and LNG increases this year, I fully expect $3 by November 2020. I would not bet on that with futures contracts or options. I’m only trying to scrape in 1% at a time here.

With all that out of the way, Low prices cure low prices. Even without a big turn around in this market, there is going to be a lot of back and forth in this range or the next range lower. I welcome the back and forth more than just a major turn, because I’ve always traded the whipsaw better than anything. I will always admit I’m almost always early, but I’ve learned to managed my risk to my satisfaction.

Speaking of my position, still holding 80% of funds in UNG. I hope to take that last step into UNG today. Now that I’ve typed you to death and warned the prices may go lower foreverly, I’m going to just place a limit order to buy with the rest of my funds. Placing a limit to buy UNG at $14.4 with a hair more than 20% of funds. There was a little left over so I’m getting a couple extra shares. If this order takes, I will be 100% in with an average of $15.51 Sorry if I rambled on a bit too much this morning. Good luck

Oldinvestor

Morning Update Jan 23, 2020

Well… weather models are back to teasing with forecasts of cold coming, how much and how long, or how true for that matter? No idea. This should still have a slight influence on pricing this morning. Emphasis on slight. Mostly traders taking a small chance I would imagine. It is EIA Thursday, with what is expected to be another relatively weak draw. Production created a new short term low of sorts, something to have patience with.

Anyway; on to the chart. I have a slight break from a wedge on 1 hour. Not sure why I was looking at H20, but that’s what the ETFs are in right now so why not. Zooming out there may be a inverted head and shoulders forming. $2.15 for H would certainly be a nice target. I’m not good at targets, so don’t take my word for it.

NGH20 on 1hr chart at Tradingview.com

Not a lot has changed for me, I’m holding tight with my 80% holding in UNG. Same plan as usual. I will sell 38% of my UNG holdings at my average of $15.85; I have a limit order in now to sell. If sold, I will still be holding 50% of my funds in UNG. A $15.85 price for UNG is close to $2.03 for the price of natgas. After a while of making these losing trades, I decided to always reduce at my average by some amount.

If the price moves higher past my average, I will continue to hold 50% for a while longer unless there is a sharp move up. There should be time to react if that happens. As far as buying, $14.4 will most likely not come this week unless today is horrible. Again, plenty of time to make a decision on that. Good luck.

Oldinvestor

Morning Update Jan 22, 2020

What we know

  • Oversupplied but stalling
  • Weather forecasts could be more bearish, but not very likely (surprise to up side)
  • Prices are awesome
  • Be patient
NG1 on 2 hr chart at Tradingview.com

Prices are moving sideways again. I suspect a lot of technical numbers like $1.83 and $2 are being thrown around right now.

There isn’t much to say about the oversupply, the EIA Drilling Productivity Report shows signs that most plays are weakening. It is odd to me that Haynesville has added DUCs and production. Unlike Permian, Haynesville is mostly dry gas and shouldn’t pushing gas in order to get to the oil. It is possible there are many contracts in that area in connection with LNG with hedged pricing. This is what I’m left to assume.

Weather is weather and the forecast is showing consistently warmer than normal temperatures on the way. Normally I would be very bullish on such a forecast, I’m already too bullish to increase my position at this point. When pricing is low and the weather forecast looks as thought it can’t get much more bearish, this is a sign for me to be on the lookout for a surprise to the up side. Being that the market is overwhelmingly bearish, I would imagine this isn’t quite as effective, but I cannot say for sure. With short positioning at an extreme and weather at a bearish extreme and price at the lower end of the spectrum, a spike in HDDs could trigger the next bull move.

Prices are low, but could go lower, that’s all I’m going to say about that. It’s time to be patient. If the price moves higher today, it’s gotta get to $15.85 for me to reduce my position. I will go ahead and place a limit to sell the last portion I just bought, which is 38% of my holdings or 30% of my original funds. For example I’m holding 50 shares in my $1000 example account. I am 80% invested and I want to sell 19 shares when UNG reaches $15.85. 19 / 50 = 38% I’m still not a big believer in this market moving a lot higher, but I will be slow to evaluate if I want to sell more than 38% when the price gets close to my average. There is still a strong chance the price moves lower before higher; I’ll be interested in buying more UNG below $14.40 if prices move there first. Good luck

Oldinvestor

Morning Update Jan 21, 2020

  • Production is still stalling, but this is common until March-ish
  • EIA Drilling report today
  • Managed Money positioning is getting wild

Daily production data, which has been supplied by HFI Research in a free article here. I’m sharing the daily chart and monthly continuous chart from RonHenergy.com. This is to show how production can appear to be flattening out and look as though it will be falling soon. I cannot say whether or not that production is going to start falling. I can only warn that this flattening affect clearly happens every year. So do not get too excited that this may be a shift in the market. However, there have been many companies announce they will be spending less on exploration and shift their focus to cash flow. Many companies are already struggling to survive with NG prices at or below $2. Bankruptcies will happen this year. EP Energy is one. I read somewhere Chesapeake Energy is carrying $8 billion in debt. Just because I company files bankruptcy, doesn’t mean their productions ceases. It is, however, evidence that drilling of new wells will be slowed, and quite possibly take longer for another company to take over and start drilling new wells on those same leases. Eventually we will see production turn and trend down long term, as seen in 2016. It will most likely take much longer than you or I want to see that trend develop.

Daily Lower 48 Production at seekingalpha.com supplied by HFIR
Continuous Monthly production line graph at RonHenergy.com

The EIA will be updating their Drilling Productivity Report today. This is a monthly report, but I believe it is a good source to find which areas or production are still strong or weakening. The last report shows Appalachia with a reduction in overall production, we’ll see if that trend continues. There are other factors, such as DUCs, new well vs legacy well production, and rig count. One thing is certain, the efficiency gains (per well) that seems to save a lot of companies back in 2016 are no longer to be had. All these factors show signs of the pending turn for production, but also appear to not be ready for the inevitable fall.

The last few weeks we still see longs building a much stronger position. Also, short positions are at, I believe, an all time record for NG. The chart below shows through Jan 14th. As both long and short positions build, this could lead to more volatility in pricing. I hope so. I feel I’m positioned well for a big move in either direction.

Managed Money Positioning at RonHenergy.com

On to my positioning. I’ve already added this morning to UNG. I added 30% of my funds to UNG at $15.04 to put me 80% in, with an average price of $15.85. I misspoke, 100% in will come around $14.4 in UNG or near $1.85 for NG prices (I mentioned $1.75). Either way, I’m good with being all in UNG at $14.4. A further fall from there will lead to me converting 20% of my shares to UGAZ. I think it’s too soon to be talking about taking a UGAZ position, but that’s the plan. I will of course reduce back to 50% holdings if $15.85 is reached unless there is some profound reason to wait. I will go ahead and place a limit order to sell the 30% I just purchased at $15.85. Let me add that I’m not confident Natgas has hit bottom. In fact, I’m pretty sure this is going to be range bound in the area if not lower than this price range, for there is not yet a strong reason for prices to recover even above $2.2 yet in my biased opinion. Hence, my reason for leaving room to convert to UGAZ on a truly dire pricing situation.

Anyway, that’s where I’m at. Good luck

Oldinvestor

Morning Update Jan 20, 2020

Forgive me… This may not make sense. Have I mentioned I hate taking antihistamines…

What do we know.

  • Production is showing signs of falling

I’m going to stop there, the EIA drilling report showed every region to have reduced production growth from their November report to their December report. This may be the most under recognized, just most significant factor for natgas that will cause a macro shift in the price. Granted, it is winter and production can stall due to winter weather, but not in every region. The next report will be published tomorrow, I will simply be looking for a steady trend to this idea that production is or will be on the decline soon. It is my understanding that production is hard to track. I know the market is still significantly oversupplied, and I see the signs that show production is about to start shrinking. I just don’t know when exactly.

This is taking forever, I’m just going to touch on my thoughts for my position.

UGAZ has fallen drastically in the last year. UGAZ price is nearly 1/4 its Nov peak value. Looking back at 2015/2016, I intentionally stayed away from UGAZ this winter (thus far) for this reason. I knew there was a potential for UGAZ to fall this hard and I’ve learned I don’t want to be stuck in this impossible position. That being said, I’m almost ready to start buying UGAZ. Even if the market were open, I wouldn’t be doing so today. My original strategy was to be all-in UNG by the time NG prices fell to $1.75-$1.9. What usually changes the plan is when the market bounces around and gives me an opportunity to reduce my position at my average or even at a profit. This is nothing new, it can simply call for adjustments to the original plan.

The only real adjustment I’ve made so far is I’ve been able to average down and reduce, allowing myself to get back in at a better price. I now have a choice, do I continue to layer slowly, with 20% of my funds at similar increments as in history? Do I build my long position faster since the price is now lower? It is good that I have today to make that decision. The natgas market is still open, but there is nothing I can do about my position today even if I wanted to.

I don’t have my answer today, not even for myself. I need to get caught up on everything I think I know about what is happening and be ready for tomorrow. I will have my thoughts organized better tomorrow. I will be buying if the price is still down, I do know that.

Oldinvestor