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