Morning Update – April 24, 2020

I grow more cautious of this potential breakout each day. I think they key is Texas, and they have ample amounts of gas being flared. I don’t know how much, but we’ve heard about pipeline constraints for over a year. Even if oil is cut back and regional pricing in Texas recovers, that will be all it is. Regional gas prices will recover and overall gas supply could remain higher, even as oil production falls. Some associated gas will get shut in, but we still don’t have a good idea of true capacity. Many of these oil wells are also reaching latter life stages and produce a higher ratio of gas to oil (from what i hear).

If I were trading UGAZ (which I’m considering getting back into with a small amount soon), I would be all out right now. Amidst all the chatter and bullshit with USO, I still have quite the confidence in UNG. Considering Oil has moved to serious extremes, USO has survived, which is more than I can say for XIV. I will continue to hold a little UNG, even if it does suffer from a small amount of roll decay. I need to update (possibly correct, not sure why) my spreadsheet for my UNG trades. I was looking at it, and I’ve gotten quite good at trading a losing ETF. I started trading UNG at $19 and somehow I’m making a profit at $14. It seems I’ve done nothing but learn to trade the losing side for the last 4 years. It’s not something to brag about, but it lifts my spirit to see that I’ve done this well in this market on the long side.

Speaking of USO

USL (teal) Chart with DBO(blue) and USO(purple)

I wanted to show this comparison between USO, USL and DBO. It appears all three ETFs were on similar paths until prices started to fall and USO is leading the pack because it is (was) most invested in prompt contract, and the prompt contract for anything is usually makes the most extreme moves. USL funds are spread over 12 contiguous contracts, and DBO is invested 8 to 9 months down the curve in February of 2021. USL should be a little more exciting than DBO because a small portion is invested in prompt contracts. This could hurt sting though if even 5% of the funds of that ETF are invested in a contract that goes negative. I lean a little more toward DBO because it appears it has almost the same strength as USL, and without the current hazards of the prompt contract.

All this talk about Oil related ETFs, I’m still not so inclined to invest in them myself. I did sell 1 covered call against 100 shares of DBO in one personal account. Premiums are good and as just stated, it is invested in Feb 2021 CL contract. This puts it out of immediate danger and oil will have to continue in quite a big way in order to hurt much in DBO.

Crude Oil Inventories excluding SPR at RonHenergy.com

My reason for still being super cautious of Oil is this. Storage isn’t quite full, but with demand still being at record lows, like 30 year lows, I don’t know….. Few airliners in the sky, probably 0 cruise ships hauling anyone but crews around, and far less people travelling to work, employed or not… You get my point. Storage is filling at an accelerated rate. Even Feb 2021 prices could fall another 12% fairly quickly. I say 12% because thats about the extent of protect my covered call adds to my 100 shares of DBO. Well I sold a $4 call for protection to $3.67 on my shares. Ok, I’m beginning to ramble on.

My Positioning:

UNG – 25% invested with an average at or better than $13.28

USL – 13% invested with an average of $11.41

I actually have enough money in my example account to sell 1 covered call against DBO, I would need to apply for options trading in that account. I’ll think about that. As for UNG, I’ll keep my same strategy. Placing a stop on roughly 10% of funds invested in UNG at $13.3 for the day and that is all. I am not interested in buying more yet and not really willing to let go of anything with that one exception. There is obviously a good chance this stop will get triggered today, because the price is already close to this figure. Just be aware I could be down to 15% of funds invested in UNG by the end of the day today. Good Luck

Oldinvestor

How much gas production does Texas really have?

Morning Update – April 23, 2020

I think very few people know what to expect with Natgas production declines, or at least a timeline. Demand is still about the same, with industrial being the only category lower YoY. This is a bit surprising to me demand hasn’t fallen a bit more.

In times of high volatility, I feel positions should be kept smaller in order to keep the position well managed. This is one of those times and I like to think, though I’m down a bit, I’ve done a decent job managing my positions. I’ve altered my patience to finally hang on to a small position for a longer trend and it doesn’t come. Not yet anyway. That being said, I think it’s time to reduce UNG further. I’m seeing gains in UNG and I feel the need to capture some of it. I feel the market has decided this price is good enough without some real evidence of weakness in production. Well my time has come, I have a call now.

I’m reducing UNG back to 20% at $14.15

My positions:

UNG – now roughly 25% in with an average of $13.28

USL – roughly 13% in with an average of $11.41 (I mistakenly said $11.75 before?)

Yesterday I placed a stop on UNG at $13.3, I will do this again today. I’m feeling that curse, you know the one when you sell and the price rockets up. If UNG gets above $14.5 today I’ll reduce again, down to 15% and it $15 I’ll be out. I do not expect this nor do I have any plans to add to UNG or USL at this point. USL is in sit and wait mode, more or less. Good Luck

Oldinvestor

Morning Update – April 22, 2020

Yesterday morning I stated I am not personally trading any oil related products. Let me clarify. I am not trading USO/USL/UWT/UWTI/CL_F/CL options. I was actually in a 5/7 put for CLM20 until yesterday. I got burned, but not bad. Anyway, I’m out of all Oil related ETF/ETNs in my own personal accounts, I will not be personally trading them for a bit longer it seems. I’m not interested in shorting oil here, it could react quickly to any news of intervention by the US government or OPEC linked companies.

The story is still the same; oil is falling hard, begging for more production cuts (forcibly). Natgas demand is still holding fairly strong. Industrial is the only weak spot YoY, and only by roughly 1.5Bcf/d right now. I have seen some news about LNG getting hit a little harder now. Cheniere is receiving more requests to cancel shipments.

https://seekingalpha.com/news/3562882-chenieres-lng-buyers-seek-to-cancel-least-10-june-cargoes-bloomberg

What really has my attention is waha gas pricing is near negative $5/MMbtu. This hasn’t been the case, and if wells in the Permian and Eagle Ford basins are getting shut in, whey would gas prices be going negative and flaring activity rising? This could be a indication that demand is being hit harder than expected right now. I cannot see another explanation for such negative pressure on natgas pricing in that area. This could be linked to LNG feed gas, maybe it is about to drop drastically.

For this reason I’m going to place a stop on 20% of my UNG funds at my break even price of $13.28. I would think if prices break for that area, there is a chance prices will continue to fall.

Current positioning:

UNG – 31% of funds invested – placing a stop on 2/3 of this position at $13.3

USL – 13% of funds invested – holding on for the ride to experience USL for the first time. (I sitll wouldn’t recommend to my best friend to buy this yet)

If UNG stops out, I’ll will be watching for news of more LNG problems or other demand cuts in natgas. I could also get back in quickly. That is still up in the air. Right now it is time to place a stop on UNG; one step at a time. Any changes, I’ll post here and twitter. Good luck

Oldinvestor

Morning Update – April 21, 2020

I’m out of USO. I personally will not be trading anything oil related until some normalcy is resumed by the market and the world. If living with the virus is the new norm, that is fine. Right now I”m out. With that said, I have sold USO and bought USL in my example account. I’ve sold my 20 shares of USO and taken a 3.3% loss on my account to get out.

I bought 10 shares of USL at 11.75. The required roughly 13% of funds.

I am still holding UNG. I think UNG will make up for the loss in USO. This is one of the most historic moments in time for Oil. There will be a moment when oil bounces, and hard, but I don’t wish to suffer until that moment. Some level of intervention was already sought out by global leadership (OPEC++++++ meeting) and prices for May contract are still negative. June is next and it is already spilling over to June. USO will be in June contract for roughly two more weeks. My assumption is that if June contract goes negative, USO will go to 0 and be shut off like a light switch.

My current positions:

UNG – 31% of funds from $13.28

USL – 13% of funds from $11.75

I do expect USL will tumble further amidst this crisis, and I wouldn’t recommend this to anyone right now. Don’t be in a rush to lose money.

I will be holding UNG to see if it will approach $15 and get out there. It is difficult to have much confidence in anything right now, but my highest level of confidence is that Natgas will continue a bit higher from this wave of Oil chaos. I will ride this USL position to see where it goes. I will not add to or reduce USL today. Keep in mind, this is a blog. I am just giving an example and not advising anyone to follow my actions. Good Luck

Oldinvestor

I just saw this, https://finance.yahoo.com/news/barclays-announces-redemption-ipath-series-001100135.html

The ETN trading under the symbol “OIL” is “suspending issuance” of shares. This is very “finance talk” type of article. My interpretation is that they are cashing out positions and essentially shutting down. Further down in the article they make the statement “may decrease or may cease to exist in light of the upcoming issuer redemption.” This, to me, sounds like it will still continue, but is a risk of closing. Either way, it sounds like something to stay far away from and it doesn’t give me any confidence in USO or ETF/ETNs as a whole.

Morning Update – April 20, 2020

Some decreases in production! As well with the cold leaving the northeast US, Canadian imports are back to lows. Demand is actually relatively strong vs last year, with the exception of Industrial demand being down 1.5 to 2Bcf/d. Res/Commercial still strong, Power burn still strong and of course LNG still incredible vs last year. I’m still a bit concerned LNG export declines will creep in, but… It should creep in slowly. Oil is crashing fast, this should help crush more production for more reductions in Natgas production.

My positioning.

UNG – 31% invested with an average of $13.28 (or a little better with my last sale of 5%, maybe a few cents)

USO – 10% invested with an average of $4.64 (barf)

I’ve heard production cuts are coming, so I may be inclined to buy a little more UNG soon. My warning below remains with USO. I will not be adding to this position. I will continue to hold USO, but I would not hold a 10% position in my 401k. I”m being a bit hypocritical by saying I’m willing to hold USO, yet I’m not really willing to hold a lot. Good thing this is a blog and not your go to source for trading advice eh! I will be waiting to make any moves. In not rush to lose more money. Good Luck

Oldinvestor