Morning Update – May 1, 2020

Loads of oil wells being shut in. Many details in the following article.

https://oilprice.com/Energy/Crude-Oil/The-Wave-Of-Shale-Well-Closures-Has-Finally-Begun.html

In the article, they are confirming what I’ve said before, that when you shut in a well, sometimes it is not capable of just being started back up. Someone had said stripper wells were at highest risk of being shut in. This may not be true. Sometimes stripper wells are the least concern, it is good for them to slow down. They are using secondary lift methods, like sucker rod pumping. Stripper wells fill the well bore with oil slowly, which is why the pump slowly. Some of these wells may die if they don’t flow them, but many will simply fill with oil, waiting for the pump to turn on again. Wells with heavy fluids like asphaltines and waxes, I believe are the wells of biggest concern. they require constant assistance to keep the well alive and flowing. Once some of these wells shut in, there may be nothing that can be done to bring the back online. A new well would be the only way to get to the same reservoir.

It should be taken notice, there is plenty of money and equipment always ready to produce quickly. I may mention this many times, don’t get too excited, shale production is quick to recover; with storage greater than normal, there won’t be a surge in pricing unless storage is below average and supply is not enough. Keep that in mind with oil or gas.

It would appear that shut-ins are having a positive effect on oil and gas pricing. Though my USL position is still behind, it is making up some lost ground. If I were holding enough USL to sell a call against the position when I bought the shares, I might even be at a profit right now. 2 hours from the time I’m currently writing this, the market will open and I’ll share an update of my DBO covered call trade.

As for Natgas, there is not serious offsetting production cuts that so far beyond demand cuts to take gas prices above $3. I’m ready to reduce UNG. I have an order in to reduce at $13.95. This reduction will bring me back to 25% in, if the order fills.

My positions:

UNG – roughly 37% in with an average of $13.08 – order in to reduce back to 25% – order at $13.95

USL – roughly 13% in with an average of $11.41

Gas is all over the place this morning. My guess is lots of news of shut-ins, bankruptcies, companies reducing spending, LNG cargoes being cancelled. Probably some speculation that summer is going to be mild, so power burn will suck… This might be a good day to day-trade, but not for the working class. I’ll stick to my sale order. If UNG swing above $14 today, I’m going to consider another reduction down to 10%. We’ll see, I’m comfortable with my current plan to reduce. I may get busy at work, and not learn anything new to persuade me to sell down further. good luck

Oldinvestor

Update on my DBO trade

Morning Update – April 30, 2020

I’m going to add some to my UNG position again. I’m buying UNG with about 6% of funds to put me roughly 37% in UNG at my average of $13.08

My positions:

UNG – 37% in with an average of $13.08

USL – 13% in with an average of $11.41

Looks like switching to USL helped reduce the pain of being long Oil. Maybe I should just go back to staying away from Oil trades since I don’t have time to really keep track. I”m saying this to say I will not be adding to my USL position. I will hold it for a while to see if the market will turn enough to provide me with a profit. I am happy I moved my money to USL, and I’ll stick with that.

As for gas, it’s just slow grind. Supply and Demand have dropped, but more evenly than I think the excited me was hoping. Also, LNG is still the bearish surprise factor right now. I keep hearing more and more about rigs laying down, capex cutting, CHK bankruptcy now. This will all put a drag on new wells, this winter and/or 2021 could be quite interesting. I’m not counting on a major lack of supply in natgas, because shale is fast to pick up the pace. Gas was over-supplied, this swing in reduced production is not a major under-supply. Since shale is quick moving, it will not get so bad under-supplied, prices go to $10 or anywhere close.

Well now I’ve gotten distracted by that job thing I have to do. haha I should get to it. No more plans to add or reduce for now. If UNG shoots up to $14, I’ll reduce back to 20% holdings again. Good luck today.

Oldinvestor

Morning Update – April 29, 2020

Still just hanging in there. I’m ready to step it up a bit on my UNG positioning. From what I’m seeing, it appears production has declined just slightly more than demand. One of the best metrics to use still is the difference in storage build/draw vs 5 year average. This is the chart I keep sharing from RonHenergy.com

EIA weekly Inventory change vs 5yr average at RonHenergy.com

This data is about a week old, but it’s compiled for you and free. As long as storage builds continue to show up below the line, this is a clear indication storage may not be building fast enough in the summer. If 2020 starts looking like 2016, this would be when things start getting exciting for bullish positioning. Don’t forget about the amount of storage that is in the ground vs the 5yr average as well. Present day storage is greater than the 5yr average for this time of year, but it’s much tighter than it could be.

Current storage difference from 5 year average for the same period at RonHenergy.com

There is still a lot of news about oil shut-ins, but there is beginning to be some noise of bullish news, such as demand may pick back up slightly. Chinese demand seems to be back to normal with the exception of international flights. With the US loosening policies on social distancing requirements, this will help; I don’t think it will yet sway the oil market. I’m hearing some news of more bankruptcies here and there. It appears that gas should still be seeing more declines due to cuts in associated gas. I believe it is time to actually increase my long position a bit more. I saw yesterday that Waha pricing in Texas has been improving. S/D balance must be returning to something of a normal market. This should mean the massive oversupply of gas in Texas is slowing more than I expected; time will tell. I am going to go ahead with another increase in my UNG position.

I’ve added to UNG to push my total holdings back up to roughly 31% with a new average of $13.08

My positions:

UNG – 31% in with an average of $13.08

USL – 13% in with an average of $11.41

I’m not yet interested in selling any UNG at $14; I believe if the price does not get to $15 soon, it may not have a chance to do so until winter. I will be watching the two charts above to judge if I should continue wait to see if prices will move higher or if I should start selling sooner. From 2016 to 2019, more times than not, I sold too soon. I’ve proven that I can control the urge to sell too soon, but now I’ve missed some moves because I’ve held the last bit of my UNG position vs selling. I want to believe eventually this small position will still pay off, mainly because I believe the market will switch to under-supplied for a long enough period to drive Natgas prices back to $3.

I wanted to share an update of my DBO trade, I will wait until 9:30est time (market open) to share an accurate account of that trade.

My DBO position as of this morning

Looks like it’s doing well. My share value is still down some, but the calls are decaying at a higher rate than the fall in the price of DBO. Very good.

I’ve been ignoring my USL position, it is down roughly 14% right now. I’m thinking oil must be finding some hope in demand recovery and supply has possibly dropped enough. Today should be interesting since it is report day for oil. I’ll just keep hold what USL I have. This same idea may have gas prices suppressed if oil production cuts are not in the spotlight anymore. Shale grows fast, just remember that. Don’t get too excite about a rally in gas. I am going to wait until late today or tomorrow to see if UNG is going to fall back to low $12s again. I”ll get more there if it happens. Today’s oil report will influence gas prices. Good Luck

Oldinvestor

Morning Update – April 28, 2020

“LNG is being as hard as oil”

https://oilprice.com/Energy/Gas-Prices/The-LNG-Market-Is-Imploding.html

I saw this article headline yesterday; it has some good info. Not breaking news, but good info.

My Positioning:

UNG – 25% in with an average of $13

USL – 13% in with an average of $11.41

I do not plan to add or reduce today unless there is a drastic move in one direction or another.

I wanted to share an options trade for anyone interested. I’ve already be selling covered calls, and HFIR had shared one last week so I bought 100 shares of DBO and sold 1 call to see how it would do. I’m going to wish I had taken on more, but this is good for learning. I remember now that I had mentioned this trade late last week. I did take it in my cash account.

DBO Covered call position
Entered DBO trade 4/22/2020

So I bought 100 shares at $5.54 for a total cost of $554. I sold a $4 call for $1.9; after commission I get a credit to my account for selling this call of $189.35 (we’ll round down to $189).

I look at this trade in two ways. 1st – I’m protecting my 100 share position down to $3.64 ($5.54-$1.9=$3.64). Since I get a credit of $1.9, I can apply this to the share price and treat it as protection to my position.

The 2nd thing I look at is max gain. Because I sold a call, if the underlying share price goes higher, my call loses me money. Now I still get to collect the left over premium, or extrinsic value after the difference in my purchase price and the strike price. I’ll attempt to simplify this here.

  • Call Value when I sold it – $1.9
  • Share price at purchase – $5.54
  • Strike price – $4

The only profit I can make is the difference in my share purchase price of $5.54 and the strike price of $4, then subtract that difference from the premium. $1.9+$4-$5.54=$0.36

So all I can make is $36 before commission, but this is almost 10% against the value of the trade. I did pay $554 for the shares, but got a credit to my account of $189. So the net cost is $364.65. so after commission of $0.65 when I sold the calls and again when the contract expires or I buy it back for maybe $0.01, I will make around $34. So $34/$364.65=9.32% of a max gain. That’s not bad for holding a trade for 23 days.

Back to the part about selling $4 calls. I could have sold $5 calls and made more money as long as the price of my shares stayed above $5 at expiration and maybe have made more like 15% on the trade. I chose $4 in case the market tanks and I can still make 9.32%, even if my share price falls to $4. That is a good deal. There is still risk, because if the share price drops below $3.65, I start losing more money in the stock than I collected in premium.

Covered calls are a good option trade from me right now since I’m already buying ETFs anyway. These calls are helping protect my investment tremendously. I can’t advise anyone on covered calls, but I might be able to help find answer to questions you might have. Good Luck

Oldinvestor

Something I didn’t mention, the premium decays over time, because as the contract that I sold (5/15/20) gets closer to expiration. The contract is worth less because there is less of a chance for the price of the stock to go up. This decay is making me money faster than the decline of the price of the shares. I didn’t predict this or plan for it; it just happened this way so far. The price of DBO could still fall hard and cause me pain, but I’ll rest easy knowing I only traded $500 worth and that my position is protected down to $3.65.

Morning Update – April 27, 2020

Capitalism is dead. We pay too much for houses, land, businesses. We operate purely on credit, and when shit starts failing, instead of operating on cash, just go get another loan. After all, the government will forgive it, and the rest of us will pay for it. Either that or inflation will keep the rich, rich, and the rest of us will continue to fall behind. Because this thing the government is doing is keeping houses, land, and businesses out of reach to common people.

Part of capitalism is taking the risk and failing. When someone fails, that opens the door to someone else. Presumably someone smarter, or possibly just more conservative with their money. The price of commercial property becomes a good enough deal that maybe I could buy some, in hopes to start a business. I’m not against government assistance, until I’m paying for a system that is just making it harder for me to start something of my own.

It’s happening all over again. Banks won’t be able to handle all the foreclosures, so they drag it out, never really allowing housing prices to fall back to reasonable levels, or bargain levels. This keeps prices far too elevated in order for the banks to recover their money faster because if the loan value never decreases, the loan will get paid in full by a new buyer, when the market doesn’t offer a better deal because everything is kept afloat. And they are using your tax money to do this.

Anyway, I’m buying UNG now, at $12.7

my positions:

UNG – 26% in with an average close to $13

USL – 13% in with an average of $11.41

I want to say we’ll see some production decreases soon; if not, I’ll slowly ride this down some more and add again. I’m slightly interested in UGAZ, but not going to do it yet. I’m still convinced Texas has too much natgas. We’ll know soon enough. I’m supportive that natgas will not go to $1.25 for now. The closer we get to summer and it remains colder than normal temperature wise, I start leaning toward a harsh winter. Solar minimums… Maybe global warming is real, but only able to warm the globe when we are burning 100MMbbls/day. Maybe the earth is more efficient at recovery than we give her credit for.

Did I mention I added to UNG, back to 26% in. I’ll add again if prices drop closer to $12. No target to exit yet. Good Luck

Oldinvestor

Keep an eye on this chart.

Natgas Inventory weekly change vs 5 year average