Morning Thoughts – Oldinvestor

I don’t have anything new today and probably will not have anything new for tomorrow (Friday). It is rare that I skip or miss a morning post, but now is a good time for it. There really isn’t much to say. I feel I should mention the weather because I haven’t said it before now. The weather forecast is extremely supportive of summer demand right now. I believe this is being overshadowed by the battle between LNG and Production. If Covid19 doesn’t improve, the situation won’t either. But… This could create some range bound movement in the price. If I didn’t have a soon to be 7 year old to hang out, I might even try day trading a little or just layer in and out. His birthday is in 2 days so we’re just gonna kick it and I’ll ride UNL without watching.

Good Luck everyone. I wish for you to have a fun and relaxing weekend and 4th of July.

Oldinvestor

Morning Thoughts – Oldinvestor

I keep hearing this same report 20 times now. Shell is playing a numbers game to make things look horrible for the industry. Not that things aren’t horrible for the industry, but… 22Billion in “write downs”. I’m not entirely certain of what that means, but it certainly isn’t operating costs in the last 3 months. I’m betting it has more to do with projected costs and “proven reserves”. I also hear an LNG tanker and car carrier collided, that’s scary but almost funny. Australia is not making enough money selling LNG, bla…

In short, the narrative is still LNG vs Production. Both are on edge. Associated gas production will still have some impact if oil recovers, which doesn’t look to be happening for a while. Dry gas is, in fact, going to continue to decline until prices support a reversal. The LNG global market is still flooded with boats looking for places to offload. I don’t know which will happen first, but the longer time drags on the greater chances are in favor of an LNG recovery.

As time goes on, and drilling is near non-existent, production falls behind on just maintaining production levels where they are, let alone expand. As time goes on, demand grows from low prices. Covid19 will most likely either evolve away from something so deadly or humans will have found new ways to live with it. Either way, people can’t seem to keep their hands off of each other and making babies, so demand will grow as populations continue to grow. Without some expectation of demand, supply would not have a reason to exist. I’ve got to stop

My position

UNL – 80% in with and average of $7.4

I’m still waiting for the next big move. It may take a while now that summer demand is picking up, prices may actually hold here. The longer the better for a rebound in the next year. I may be holding UNL that long at this point. Good luck

Oldinvestor

Morning Thoughts – Oldinvestor

Yesterday was the first day I’ve not been completely stressed about the market. Not because it had an up move, because that may not last. The move to UNL was a good one for me. The market is clearly near or at the bottom, but with negative roll yield/contango, even UNG is still not quite as safe an investment as I would like. UNL clears that up for me personally. I can let the leash out on my managing of it and not worry. The market will recover to something of fair shape by next year and UNL may be the only position worth taking for that long. When I started the blog, I had never held UNG for such a long period nor did I intend to. Anyway, I feel better about this, though movement will be slow in UNL.

I have not updates, but I can list my thoughts.

  • Bullish factors:
  • Summer weather is projected to be hotter than normal
  • Dry gas is still slowly falling, oil is going to be slow to recover so associated gas should be slow as well
  • The biggest long term factor is drilling has been cut by record numbers

  • Bearish factors:
  • Demand is going to take longer than we want to recover
  • Storage is horrible, and you know how I feel about South Central storage if you’ve been reading my posts
  • Covid19 is a real problem, one that general public and governments are not on the same page about, this factor is impossible to project a timeline or impact Covid19 will have on US or the World.

Keep an eye on South Central storage and associated gas recovery to be a key factors on the bearish side. Stop looking for something “to happen”. LNG will recover, but it’s going to be slow. Production has slowed, but is possible to add 3Bcf/d in a matter or weeks.

getting called to the supervisors office, hmmm

I’ll be holding UNL forever. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

This is going to be short. So either gas has hit bottom from this last drop or there will be a bounce and more pain to come. I can’t say which will happen or I wouldn’t be here typing about it. Those who have the most answers generally share the least.

Sounds like CHK finally fell on their sword and have officially filed bankruptcy. Someone mentioned on Twitter that this will allow them to now cut production if they choose, but I’m not sure if that is true or not; something to keep a look out for.

Weather forecasts are showing to be more supportive of summer demand. This will help pricing of course, but it will not pull the market from an overall move lower if storage continue to climb.

Last, I’ll keep my eyes open for any news of production cuts or positive actions in LNG market. Round 2 of Wuflu is also starting to kick in and causing bars to close again. So this could have more negative impacts on the market. There is still too much pulling Natgas in both directions, and too much unknown to take more of a chance that I am currently.

My position

UNL – 80% in with an average of $7.4

This position will remain until a large move happens. Now a large move for UNL would be like $0.50. Plenty of time to react, and I will return to UNG some day. I need to slow down on natgas right now and do something less stressful, UNL will help with this tremendously. UNL greatly reduces my risk and need to manage my position so closely. Good Luck

Oldinvestor

I may keep my thoughts shorter, but will still stay focused on what I find important each morning.

Morning Thoughts – Oldinvestor

Today’s post comes with a warning, I would like to hear your thoughts on this on twitter. Thanks.

I’m throwing a lot of data out here, and it’s a mess, I don’t have much time to get all this down and organize it. To compound on my postings yesterday, I’m theorizing that South Central non-salt storage capacity is in danger of causing NG pricing to go negative just as CL pricing did. The one major difference is that the US controls its own fate as to whether or not this happens, and I’ve not heard of any governmental intervention yet…. Let’s kick this off.

Summer Inventory builds at RonHenergy.com

Above is Summer inventory build across all regions; 2014 and 2019 were two of the strongest building years of natgas storage in history. Granted, the market keeps growing and storage capacity isn’t growing to match the size of the market. So we’ve upgraded from a Dodge Neon to a 2500 Ram, and kept the same size fuel tank. It takes less to fill it and empty it. Now to break it down by region. I’m not sure who decided on these regions for storage, but EIA has 5 regions, Pacific, Mountain, Midwest, South Central, and East. Within South Central storage (also being the biggest overall), it is divided between salt caverns and non-salt storage. This is all underground. Below I’m showing South Central storage, both salt and non-salt, then the two combined all in one chart. Each of these charts are in comparison to 5 year averages for each (sub) region.

Regional US Storage per EIA.gov
South Central storage vs their respective 5yr averages at RonHenergy.com

Below here, I”m sharing the same as above, but for East, and Midwest regions. Mountain and Pacific regions don’t come close and aren’t worth mentioning.

East and Midwest regional storage vs their respective 5 yr averages at RonHenergy.com

Below here is South Central as a whole, comparing 2015, 2016, 2019 and 2020. In 2015, storage built fast and in 2016, production turned and dropped that year. I’m showing 2019 just to see what the market looked like last year, as far s the trend for the South central region. As you can see the trend right now is very scary.

Perspective – South Central Storage vs the strongest builds in history at RonHenergy.com

In fact, this chart scares the shit out of me to be long prompt NG, UGAZ or UNG. July contract ends today. UNG funds are in August contract right now, and will remain this way until…

UNG roll dates at USCF Investments

So UNG will remain in August contract until it starts rolling on July 15th. UGAZ starts its roll 5th trading day of the new month, 5 day roll. If I’m assuming July 3rd will be a trading day, maybe not… July 7th or 8th will be the start of the roll for UGAZ… This leave around 2 more weeks that these ETFs will remain influenced by an NG contract that has the potential to go negative. South central NG storage is near 85% maximum capacity, let’s review.

South Central storage is home to the Permian basin and Eagle Ford, the strongest producing areas of associated gas. Just yesterday I hear of wells that were flaring were the majority of wells to be shut in. South Central is also home to Cheneire Energy, with Sabine Pass and Corpus Christi with the biggest drops in LNG exports. Lastly; Henry Hub, the go to for NYMEX pricing of Natural Gas.

We can’t just assume that Natgas is going to suffer the same fate as Oil, but we can stay aware of what happened, and remain cautious. Or paranoid in my case.

Weekly storage at Cushing, OK found at EIA.gov

Also according to EIA, found here, Cushing capacity is 75,835 Mbbls. Week ending April 24, Cushing storage was at 63,378 Mbbls, or roughly 84% of capacity. April 20 was when CL prompt pricing went negative. Cushing never reached maximum capacity. It’s the sharp rise that scares traders, and the potential to run out of capacity so soon.

My point is, you have some of the strongest production in the same region as the biggest drop in demand due to LNG feed gas. This same region contains the standard for US natgas pricing. Though much of that gas can be flowed to other storage facilities, it is getting dangerously close to a panic for South Central Storage. I don’t have as many details on oil and what was the biggest factor for CL pricing to go negative, but my paranoia displayed above should be reason enough to be extra cautious of at least the prompt contract. South Central storage is showing an even sharper rise as of the last few weeks, where it would normally be turning to flatten out for high summer demand. LNG is to blame, but the thought of no place to send natgas production in a matter of weeks is the reason for pricing being right were it is today.

I’ll remain in UNL, which is spread over 12 months of NG contracts. I refuse to get back into UNG until the threat of storage reaching max capacity subsides. I’m a big supporter of ETFs, and UNG. Right now I would recommend to anyone listening, be warned, UNG isn’t a safe bet in the chance that NGQ20 could go negative in the next couple weeks. Search some article about USO having to change how they invested their funds in different contracts and products to avoid total collapse of USO. I’m not saying UNG is going to share the same fate as USO, but the possibility is ever growing and hasn’t subsided yet. Manage the risk now and you’ll still be around to trade tomorrow.

Oldinvestor

of course I forgot to mention anything about LNG cancellations. I ran out of time and must fulfill my day job work duties. I’ve written some about this matter in previous posts.

TRADE ALERT

I’m going to move my funds from UNG to UNL. I’m dumping all 60% holdings in UNG and investing 80% of my funds in UNL. Now.

Better to protect right now. I want to keep my long exposure, and I may switch back to UNG when I feel there is 0 threat. UNL funds are spread evenly over 12 contracts, whereas UNG is invested in 1 (prompt or the very next contract).

So I’ll have wiped out all gains on my example account and be down about 4% since the inception of the account. UNL can easily move 10% in a few months once all this is done and I feel much better investing a larger portion of my funds in UNL than in UNG for now. It is very strange how I once felt this way toward UNG in relation to UGAZ.

UNL vs UNG on daily chart from early this year.

You see that UNG has had tremendous negative roll yield decay where UNL is actually higher than its previous low in March. Something is wrong with the timeline scale on daily chart with Webull. hmmm. It is still accurate chart wise and the comparison. I may make UNL my go-to ETF for natgas in the future. This whole blog and adventure was started to discover better options. UNL is one of them. Let’s get this done. 80% in UNL at $7.40

Right now my account is in the red by 7.7%

I’m 80% in UNL with an average of $7.40 – (so it’s 79%, but I’m calling it 80)

scroll on down to read my morning thoughts that have help scare me into this position. I feel good about this move though. I’ll sleep better.

Morning Thoughts – Oldinvestor

LNG is still the king bear with the biggest potential to turn the market around. Production is still the biggest bull with the potential to turn prices negative with any rise in supply. Something that HFI posted on Twitter last night was there was a major revision in production through their vendor of data (Pointlogic, now owned by IHS Markit). They didn’t write a free article on this info, so I shouldn’t say a ton about it. The image shared (one of the last things I retweeted yesterday) showed production being revised lower by near 2 Bcf/d for at least a couple weeks now. This is great news, but it doesn’t take away from the idea that storage is still in a very bad place and the market is still struggling with keeping storage from getting way out of control.

There are a lot of numbers being thrown around for EOS (end of storage). You know the highest point storage gets to right before winter begins and we (the US) start using the gas much faster and drawing out of storage. Many sources are claiming EOS will get to a record high this year and it is possible some regions of US storage could reach maximum capacity. Now max capacity could be more theoretical than we understand, but we may be testing those limitations soon.

The links above are full of good info on storage. The EIA is a good source for basic, yet very useful data on naturgal gas.

I have a call. The last link is storage for each region. I should return.

I’m holding my position still.. 60% in UNG

I’m back; if we were to look at the storage dashboard (the last link above), we would see south central storage is already 80% and and 84% to full capacity.

Just like if any region runs low on storage in winter, prices can shoot up. If south central storage were to run full, prices could go negative in anticipation of this. I’m not saying this is a sure thing, but it is something to hang on to. UNG could end up in a situation similar to USO where they are forced to roll forward sooner and spread out their holdings to protect from destroying the ETF. Why this probably isn’t going to happen, yet at least…

Weekly South Central Salt Storage from 2015 – Present at RonHenergy.com

Looking at this chart by Ron H. we can relax knowing that salt is at least going to get some temporary relief soon from summer demand. For July/August, power burn in this region will cause Salt to dive again. My concern is will it be enough since most LNG exports operate in the same general region. Is the lack in LNG demand going to send more gas into storage in this region. So far it looks like there has not been an influence of LNG on Salt storage, because the curve looks similar to last year and storage is still below 2016. This all could change, but I’m just trying to look at this from both sides. I’m actually a bit more concerned about non-salt storage.

Weekly South Central Non-Salt Storage at RonHenergy.com

The south central non-salt seems to be building at quite a high rate, possibly indicating that the lack of LNG demand is sending more gas into this region of storage.. I don’t feel so good looking at this. This whole concept forces the idea that LNG is going to crush this. Keep an eye on this if you are long. This would cause me to dump all my holdings in UNG. hmmmm

I’ve got another call… good luck

Oldinvestor

Morning Thoughts – Oldinvestor

And down we go. Waiting… There is literally nothing new for me to speak of, at least not that I’m aware of. LNG bad, Cooling Degree Days good, production good and bad, back to LNG… waiting for LNG, and it’s going to take fooooreeeeevvvvvverrrrrrr.

My position

UNG – 60% in with an average of $11.23 – waiting.

I have no plans to buy or sell yet. I’m in no rush, going to be another 2 months before LNG shows any possible signs of recovery. good luck

Oldinvestor

I might sell some covered calls against SLB, EOG, WPC, SRC. Not in my example account, just as a side note.

Morning Thoughts – Oldinvestor

Same story, different day. I first saw this article by Reuters yesterday: Buyers of U.S. LNG to cancel 40-45 cargoes for August loading: sources.

More almost confirmed cancellations of US LNG exports, in my mind, is, without a doubt, the cause for yesterday’s price drop. Did I use enough commas in that last sentence? That’s all I have, because that’s all there is. UNG is approaching lows again. I do not have a lot of confidence in the idea that NG will range here, but it feels this way. There was originally said to be 30 or so loads of LNG cancelled for June (loaded in June), and 40 or more loads cancelled in July. Well… It’s not July just yet, so I’m guessing LNG feed gas is going to drop further, potentially to what I had originally estimated.

Monthly number of loads and Volume exported at RonHenergy.com

If there are a potential for 70 loads in a month (and I think I’m being liberal with this number), then 30 cancellations would equate to 40 loads total in a month. Of course 40 cancellations would be 30 loads total when compared to 70 potential. 40 loads would comparable to early 2019. 30 loads in a month should be closer to late 2018. When looking at the feed gas chart…

US LNG feed gas from mid 2018 to present at RonHenergy.com

I want to say 4 to 4.5Bcf/d should be expected for the June cancellations and 3 to 3.5 Bcf/d for July/August. Barf… I think I originally considered early 2018, closer to 3Bcf/d for feed gas rates. Either way, with a new round of cancellations, there could very well be a further drop in feed gas. More of a drop will not be as drastic than we’ve already seen but it will be a while before there is any meaningful recovery of LNG feed gas. Double barf…

My position

UNG – 60% in with an average of $11.23 – I’m content with holding to see if new lows are reached

I stopped out of my last 20% layer of UNG at $10.20. I’ll be ready to buy it back up soon, but would like to see if today is another down day with the latest news for LNG. Being patient is good. I’m just glad I’m not in UGAZ, slowly dying from decay and now being de-listed from any exchange. Good Luck

Oldinvestor

Morning Thoughts – Oldinvestor

Production is coming back online. I’m seeing a small increase for the last three days, this could be coming from Texas. We knew this was coming, it is now upon us. Permian oil producers are going to weigh in with oil and gas will come along with… I did see something about Texas may be doing something about all that flaring that has been going on the last few years. Even if natgas demand picks up and LNG goes back to 10Bcf/d, there is ample, untapped gas that can be retrieved quite quickly. Depending on the timing of everything, there could be a strong swing in NG prices.

I believe even more emphasis is now going to be put on LNG recovery. If oil producers in areas like Permian are going to start increasing output and LNG hasn’t recovered… Down we go again. Gas storage is much to high for production to increase and prices not respond immediately. Remember when natgas couldn’t possibly stay below $2? This will impact the market as a whole in a bullish way, but not until it all filters down to production numbers in a substantial way. I think the last drop in NG prices was due to a big drop in overall demand. This is a normal fluctuation in weather, which is now supportive of higher demand. I continue to be pessimistic about pricing. I’m placing a stop on my last 20% layer of UNG.

my position

UNG – 80% with an average of $11.22 – stop on 25% of my holdings (my last 20% layer) at $10.2

If you UNG falls today I’ll stop out back to 60% holdings in UNG. I’ve placed the stop at $10.2 and will keep moving it up each day just under the previous day’s low. Since my average right now is $11.22, I’ll keep this average and take a loss if I get stopped out. The closer the price of UNG gets to $11.22, the more I’ll add to my stop. For example, if UNG gets closer to $10.75, I’ll move my stop up and increase the amount from 25% holdings to 30% holdings to be reduced. If I do this, I’ll do my best to post an update here and to Twitter when I can. Good Luck

Oldinvestor