Key factors mentioned the last couple of days are still key. Production is holding near recent low levels. LNG export feed gas has risen the last few days.
I don’t normally keep track of oil, but check in once and a while lately to see how I believe it might affect natgas. the EIA oil report is today (normally on Wednesday). The natgas report will refresh at normal time, 10:30 est, and oil 30 minutes after that. Oil is still has a stronger than normal grip on influencing NG pricing. My reason for looking at oil more closely today; API is showing big builds in oil storage yesterday? This just stirs the pot…
I put less stock in trading around EIA report time these days, but today pricing could bounce around just enough to initiate another purchase or sale of UNG. I’ve got a big day at work, so I hope I make it to the meeting.
My position – 40% in UNG with an average of $12.03 – limit order to reduce to 30% in at $12.3
I’m still interested in reducing at $12.3 on UNG back to 30% holdings. I’m also interested in adding, even right now at $11.6, but I’m going to wait. I suspect the price will slowly move up some before the report. Usually not buy maybe 15-20c on UNG. If UNG will near $11.4 during/after the report today, I’ll probably add to my position, bringing it back up to 50% in UNG. I can’t say I’ll add more than 10%, there is always tomorrow if it wants to fall. I also can’t say I will reduce beyond 30% yet. I want to give LNG a chance to come back online, though it is weak right now. Good luck today.
Don’t get me wrong; right now, natgas supply has dropped more than demand when compared to last year. It is the incoming threat of LNG dropping another 2-3Bcf/d that weighs on pricing. I hope I don’t come across sounding as if I know what’s going to happen with pricing. What do we know
LNG is still a bearish threat
Production has adjusted accordingly – suspect more reductions will come if prices continue this way another month (going out a limb here)
weather continues to help out demand – TDDs are projected to continue higher than normal
A thought occurred to me yesterday; when the news reports that July LNG shipments have been cancelled, does this mean the shipment leaves by July or arrives by July? I would imagine the intention is for July delivery. So this leads me to another idea, and I’m certain Samir Madani could answer this; how long does it take for a shipment to move from an US export facility to say… UK or Turkey.
On another note, I saw this article. I know I’m all over the place this morning. Gotta be quick about this. Turkey to open 40 wells for natgas storage! “Currently, the facility can store 600 million cubic meters (mcm) of gas and has another 600 mcm of capacity under construction with plans to reach 5.4 billion cubic meters by 2023-24.”
Turkey has taken 87.1 Bcf of Natural Gas from the US in the last year! This is part of the reason i quit trying to keep track of oil; too much international news to keep track of… oh well. This thing with Turkey doesn’t have much immediate effect, but it is just something that may be popular right now and could be helpful to know in the future.
Back to the amount of time it takes to deliver gas to UK or Turkey
I think Ron H has all the info needed. I don’t have time to process the data right now, Looks like there are a lot of boat names starting with “British”, they go all over Europe. British Achiever took 10 days, but the location is “Null”; it’s only been 10 days, maybe it hasn’t arrived anywhere yet. British Contributor, 27 days, and…. has traveled to Spain, UK and Null on the latest trip started 4/29/20. My point here should be clear. It takes longer than 10 days to get a boat from Corpus Christi to the UK, and that gas (or lack of gas, due to no delivery in June/July) may be used at the LNG export facility even a month before the delivery date.
For example June Henry Hub futures contract will end around… now? Maybe it was yesterday. June is upon us! and gas for delivery in Turkey may take 25/30 days? I really still have no idea. Help Samir! 😉 The part that I hadn’t clued in yet until yesterday, all June delivered gas would have already affected LNG export facilities, and July gas should be affecting them now. I mean the cancellations. So unless we hear about August cancellations soon, LNG exports could be on the rise sooner rather than later. I do think there will be cancellations since there seems to be a backlog of tankers unloading in other countries. I don’t mean to sound all excited, it’s just something I hadn’t considered so much before now.
My position – 40% in UNG – I sold a 10% layer this morning at $12.13, next at $12.3
I’ll have a limit to reduce UNG further at $12.3, this would be around the equivalent of July contract price at $1.99. I’ll be happy to take some off, stay prepared for any drop in pricing and keep 30% of my funds in UNG for any possible break for $2.1. We’ll see,right now I’m focused on managed this 1 layer of 10% at $12.3. No plans to add yet of course. Good Luck
Back to the grind. I’m a bit surprised, though it was Memorial Day weekend. July NG prices have tested lows again and have yet to break down. Anything can still happen, what do we know:
LNG exports are way off and getting worse – The biggest bearish factor
Production has fallen around 8Bcf/d from Nov highs – biggest bull factor
HDDs/CDDs have been bullish for a very long time – imagine that
Overall Demand is holding – due to elevated HDDs/CDDs
Weather has been pretty incredible to support demand ever since it took a nose dive. This may be the very reason why prices are still holding. I’m going to keep this short. I think any news of LNG exports or production shutting in or coming back online that will be the deciding factor. One might argue that LNG is already known and priced in, but I don’t believe that completely true. The market in the last few years seems late to react to such news, waiting until the last moment to respond to fundamental changes. There was a reaction last Wednesday to news of LNG export cancellations in July. I’m saying July contract could fall further as feed gas to LNG export facilities falls further. Just stay cautious of this and associated gas news (rise in oil production in areas like Permian).
UNG – 50% in with an average of $12.03
I got a little anxious to bring my holdings in UNG up to 50%, now I think it was a bit too soon for that last 10%. I can still manage my position; I do need to wait for July to break down at least to $1.75 before adding again. I have no expectation of a change in position today. I have been interested to reduce my position by 10% at break even, this time I think it will be 20%. So if UNG prices get to $12.03, I will have my finger on the button to reduce down to 30% holdings in UNG. Sit and be patient to add. Good Luck
I’m sorry I missed posting on Friday. I never want to write something if I have nothing interesting to say. I remain bullish on the market but am concerned about short term demand risk from shutdowns in the US. Even as the US opens back up county by county and state by state, there are many who will continue to self-isolate which hits demand.
Much to my surprise this weekend, it looks like natural gas supply is back above 89Bcf from a low of 87Bcf (from my preferred provider). I want to see a few more days of this production to confirm this data is true (and not something odd from modeling a 3 day weekend). If these production numbers are true, I would expect to be a little less bullish going forward. Another confirmation from a technical perspective would be to see price action drop below 1.80 on NGN20 July.
I also continue to be concerned about demand for LNG exports. Along with a surprise from the supply side, I am also watching a small bump in LNG exports back to the 6Bcf level. Just last week I was saying I was worried about demand going towards 4Bcf which I am still concerned about. One thing we know in natural gas land is that the market is always throwing us curve balls.
Looks like the market is continuing down the same path. Production is suffering, even closer to the next bankruptcy or shut in contender. LNG is still the bane of Natgas, not yet showing signs of letting up. The prices is still bound to this range near, and below $2. I’ve not traded UGAZ for a while now. Might take this moment to mention contango is strong right now.
For anyone reading this that doesn’t know what contango is, essentially July contract is priced higher than June contract, that’s contango. When the next contiguous contract is priced higher than the prior contract.
As you can see, there is contango for at least the next 5 months. I didn’t show Dec being 40c higher than Nov, and Jan 15c higher than Dec. 7 months of contango. This is some very big contango.
What does it mean? When UGAZ/UNG/DGAZ/BOIL/KOLD roll out of one contract into the next, they basically sell at the current price, and buy the next contract at that current price. All these ETFs have taken the money in the fund and I think are all holding position in July contract. July will eventually expire, so they must “roll” to the next contract. Simply put, if if an ETF were to roll based on the prices above, they would sell July at $1.874, and buy Aug at $1.950 (Or short if DGAZ/KOLD). So this doesn’t change the value of the ETF, it is simply moving the funds invested from one contract to the next. LIke if you had a million dollars worth on July contracts, you sell them and buy Aug, you still have the same value of contracts, but fewer contracts.
Why does the price of UGAZ keep falling. This contango is caused by the market believing that prices of natgas will be worth more in the future. For example. Maybe COVID 19 will at least be lesser of a problem in August. So the world will start using more natgas again, and no LNG exported loads have been cancelled yet for August. So August contract is worth more now, because the market believes demand will be higher than during July, making Aug contract worth more than July. UGAZ may roll into August contract with wide contango (the price of Aug being much higher than July), then something upsets the market price for August and UGAZ price falls further.
Let’s say $3 is the happy place for natgas prices, and I have a call to go to. i should return.
Back again. $3… Happy place… It is my impression that as long as nothing “bad” is expected for a given month, prices will gravitate toward $3. This is the price producers can make just enough and consumers aren’t too displeased. So June is in the worst shape because a bunch of LNG loads were cancelled, and that’s going to put a damper on the market. LNG loads have been cancelled for July, that’s another bearish event. No LNG cancellations yet for August, leading to higher demand, but the market isn’t going straight to $3 because the likelihood is still high that there will be a demand disruption, such as more LNG exports cancellations.
I think I’ve beat this to death. I want to look at one example of the contango problem for UNG/BOIL/UGAZ. Rolling from July to Aug contract, is 7.5 cents of contango. If August decides to move 7.5 cents lower, that is roughly 3.85% lower for UNG, 7.7% for BOIL, and 11.5% for UGAZ. These would be the losses due to contango, and August catching up to July, by falling on more bad news directed at August natgas markets.
The reverse of contango is backwardation, If June prices where higher than July, or July higher than August contracts. Because the discovered this supper efficient exploration method called horizontal drilling and fracking (into shale formations), we have found more gas than we need for quite some time, putting constant pressure on pricing. Contango is much more common than backwardation; this will continue to be the case as long as shale drilling is commonplace and greed will always drive competition up in the public sector. Well… as long as back room deals are kept under control. Even if half of all natgas production goes bankrupt right now, prices swing to $10 this winter, it won’t take long for shale production to ramp up and we’ll be back to low prices, and contango once again.
Even UNG is affected by contango…
In the last 12 year, UNG has ended higher than it bagan only 3 times. Only once has UNG ended 10% above where it began, and all losing years are 25% or greater. Maybe I should be shorting UNG instead of going long. That’s for another post, another day. Day jobs are good. Hope your weekend has been good to you.
30 loads is nearly half of all LNG exports by load, and 45 loads will be 60% to 70% based on recent activity leading up to the wuflu. I expect there to be another drop in LNG feed gas to LNG export facilities. Possibly as low as Jan 2018, or 2-3Bcf/d…. ouch.
And the saga continues. I had mentioned Oil being the main factor in the drop Wednesday for natgas. This is far bigger though not any more surprising. To remove another 3Bcf/d of gas from US demand is another nail in the coffin for another producer. Obviously I have an uphill battle buying UNG here.
July has strong support around 1.825. If you were all out, this would be the place to test a long position. Granted that LNG news is very bearish for near term storage, this could be a point at which July prices break down. One thing for me is still certain, this market is range bound at best until something changes to ensure storage will start subtracting it’s over supply vs the 5 year average.
UNG – now 50% in with an average of $12.03 – I chose to purchase with 10% more funds last night because I feel the bottom is in or near and I have not been utilizing my funds. This does require me to use even more if prices fall harder. I’ll have to be more patient if the price moves lower from here. I will not be buying today unless UNG falls closer to $10, which probably will not occur on a friday, even with the bad news in LNG. Market makers already got that news 2 days ago anyway. I’ll be happy to reduce 10% at $12.03, but I don’t believe that will happen today either. I’ll go ahead and place the order to reduce, but with no expectation of it filling today. I’d like to stay an think about what else I have to ramble on about, but I must work. Day jobs are good… Good luck
NGN20 is back towards the previous lows of 1.802 on March 16th and the recent low of 1.822 of just last week. As I write, NGN20 is trading at 1.841. I’ve written mostly about supply so far and since my first post supply has fallen further to 87.0Bcf. With the decline in production and the price for the 1.35 x 1.20 put spread again at 0.011, I feel comfortable adding to this position and selling another credit spread.
The last thing I want to do is advocate adding to positions just because the price moved against my previous trades. By trading small and knowing the max risk with an option spread trade, we can think clearly and logically and say has my view changed, do I like the position better? This way we can add to a position from strength and not from weakness. Markets will move against you and a trader needs to maintain discipline by knowing the max risk beforehand so that he/she can trade with a clear mind.
If supply had increased, or if the storage report today at 81Bcf came in higher, by no means would I add to this trade. Frankly, I’d look to sell a call spread to help move more towards a delta neutral strategy. Since I am still bullish, I am content to wait on the call side. Hopefully the market gives us another opportunity in the future, but if not than so be it. I will take the opportunities that the market gives me.
Jeremy made some good points on why the demand side is probably causing the weakness in price. With oil prices rallying back above $30 WTI, more associated gas production that was shut in due to oil will come back into the NG supply. I’m not sure when but there are good arguments that the supply will be back closer to July vs June. The arguments I’ve seen discuss how physical commodities are nominated for transport on pipelines. Being a financial player only with no physical commodity experience, I cannot opine on the truth of this statement and will monitor.
The other bearish discussion coming out of the market are more LNG cargo cancellations. This discussion has been out in the market for a while, but the demand side seems to be getting worse. As recently as a month ago, the consensus seemed to me that LNG exports would bottom at 6 Bcf. There is now discussion that exports could potentially drop under 5Bcf and possibly as low as 4Bcf. I saw a twitter post saying the Europe gas was down big again today, but have not been able to verify yet with additional posts.
Trade 3 – Sell 1.35 x 1.20 July puts for 0.011 credit (filled).
I seek out all feedback especially push back if you are bearish on NG. I’d love nothing more than to change my view if I am wrong. Please send me a tweet publicly or privately @jrhngc
The big drop yesterday? What the hell happened. Josh had mentioned the weakness in the last three days. I noticed this as well, it was hard not to. UNG had pretty much gone to $12.5 and stopped each day. Yesterday was different; the 10:30 candle on 5 min chart is larger, it stands out. This was during one a very prominent surprise oil draw during the EIA oil report that normally is published at 10:30 est. on Wednesdays.
So my main focus here is that oil got a surprise bullish report, this is well received by oil of course, not so much for natgas. This is going to sound more obvious to most readers, but for now I want to sound obvious to most. When the pandemic was starting to have a major effect on demand, it was perceived that oil production was going to crash down all around us and the associated gas would be drug down with it. This did happen, but to what degree?
Natgas production was already on the decline due to horrible pricing for producers. I would say this is responsible for lowering production to 91-92Bcf/d; normal decline. Another 1.4Bcf/d, we just learned, is due to a dry gas producer (EQT) in the northeastern US. This brings the total production down to 90.6Bcf/d. Now keep in mind, everyone is still not totally clear on what the correct production numbers are, my self included (obviously). If production is as low as 88Bcf/d right now; it is possible the drop in associated gas is responsible for a reduction in natgas production by 2.6Bcf/d. That’s drastic…
Circle back around to now. If oil had one of the most bullish surprising days, at least in a long while, especially on the back of such bearishness and during a high volatility time with high running emotions…. And… we just rode a wave in natgas due to associated gas falling. It is possible that when oil reverses it’s mentality back to prices are climbing, the us oil market has quickly swung back to being under supplied; this is bearish for natgas. Now I think natgas seems to be, often, pulled around by the horns by big players. Not in a market manipulation kind of way, but just in a big influential kind of way. I don’t really know how to compound on that right now. plus I now have a call, I want to buy some UNG this morning, but I must answer this call first.
Back again. to recap, Natgas hit a ceiling Monday, Tuesday, and Wednesday. So maybe that is all natgas has in it for now to the up side. I still lean more to the bull side because of pricing and what it is slowly doing to the market. Oil did drag down associated gas, but we aren’t sure this caused a 2.6Bcf/d drop in natgas production. That number could be way over rated, there have been revisions since that chart above was posted. The drop in production was not as drastic. So the drop due to associated gas could be closer to 1 – 1.5Bcf/d. Also oil isn’t going to just jump back online. Let’s not forget, pricing for oil and natgas are both much to low to allow production a fast recovery. There are still bankruptcies to process and capex to cut even now.
I need to speed this along
UNG – now back to 40% in with a new average $12.16
I’m interested in adding another 10% to UNG closer to $11 if we can get there today or tomorrow. July is again 15c below $2. It feels as though we are swirling the drain again. That, to me is a fair indication to buy. I’m betting there will be more dry gas production slowing/cutting soon enough to give natgas pricing another shot. Until I hear solid news of more LNG cancellations, I feel I’m being cautious enough of that for now. Report comes at 10:30 est time for natgas. http://ir.eia.gov/ngs/ngs.html the link well auto refresh at 10:30.
I will add during/just after the report is released on a sizable drop anywhere near $11 in UNG. I will also reduce if somehow UNG jumps to my average of $12.16. 10% to buy or 10% to reduce. Good Luck
NGN20 July did another test of the level reaching a high of 2.028 but not quite getting to the 2.04 – 2.10 I was looking for. I see that area as congestion with the first test in mid March, testing again the first week of April before breaking through later. Looking at the chart again, I’m surprised I didn’t notice it before, there is a big candle reversal on April 27th where the low is 2.025. Instead of 2.04, which was the 200 day SMA, I am now going to use 2.025 as to where I’m trying to sell a call spread. Also the 200 day SMA has now moved down to 2.027 since then.
Honestly, I feel dumb that I missed this before but I would argue that if the market doesn’t make you feel dumb a few times each week, you might be doing something wrong. Obviously we’ve seen 3 tests of that level and today seems like a solid rejection.
So I’ve moved the limit price of my call spread (2.50×2.65) down slightly in hopes I catch it if we get another rally and test this Thursday or Friday.
Fundamentally, I think we should be rallying so I’m not sure why the reversal today. Weather overnight was slightly bearish but almost a nothing burger in my mind. Supply continues to come down, the latest report I’m seeing now is 87.0Bcf. The NG producers are on our side in that low prices delays completions to later this year, choking back where they can, delaying repairs and workovers if it doesn’t damage the well.
We received confirmation of this view with EQT shutting in 1.4Bcf per day confirmed by an SEC filing with ETRN.
Because I am still bullish and think this decline back below 1.90 is unjustified (1.885 low today so far, currently 1.911) I’m looking at selling another put spread. Same setup as before, 1.90 straddle is going for approximately 0.35 I want to sell at ~1.5x away (or 0.525) so I’m looking to sell the 1.40×1.25 for a credit of 0.011. After sitting between the bid of 0.010 and ask 0.012 for over 10 minutes, I moved my order to 0.010 for an instant fill.
In my first trade that I posted on our NGetf.com website, I accidentally only used 1 commission as I normally don’t do these calculations every time (oops sorry). This trade calculation is correct (thank you for the reader who pointed this out) $94 / $1406 is a return of 6.7%. Expiration is 36 days to go.
What do you know, I sit down to start typing and get called away… I should return.
Come to think of it, I don’t have much alteration to my thoughts since yesterday. Production still appears to be falling. I’ve seen a lot of discussion about who’s right about where production really is right now. As in, what is actually being produced. I don’t know of a single entity that is capable of collecting and processing data from every well in the US each day. They all take samples, possibly from as many sources as they can reach out to, then reverse engineer a number they suspect to be the total production for the US. Granted, when there is a major change in production, number from one data source to the next will be skewed. Then EIA gets their data from Pointlogic, part of OPIS, which is now IHS Markit or owned by…? Don’t listen to me.
The overall background has not changed, there was a large drop in production, assumed to have happened over last weekend. This drop will still effect the entire market in a bullish manor, but will have limited effect.
Production drop = bullish
Some wells are hard to restart, some are not – keep this in mind = limits bullishness
storage fullerer than normal = bearish
All roads lead to storage. In 2019, storage swing from under supplied to over supplied vs 5 year average. Low pricing was beginning to solve the problem and the pandemic has simple accelerated the issue. I want to jump ahead and say that storage will swing from over supplied to under supplied. I’m on the long side of natgas, so it should be that exciting. But…. Keep this continual warning in your back pocket, shale is quick to produce, everyone has seen it happen, a few times now.
UNG – 30% in with an average of $12.36 – limit order to sell down to 10% holdings at $12.95
I remain with my limit to sell at $12.95. The market is trying again this morning. I feel 30% in a good position since I’ll make a small profit on a move higher, which is all I ever expect. 30% is ideal to me if prices fall again, I have plenty of funds to increase and improve my average. I have not plans to buy yet. Good luck