NGAnalyst

Natural Gas Trading: Right Now, It's the Wild, Wild West

Aricool, good questions asked.
My way of understanding/speculating is this --- OFOs are seen as a bullish factor in the sense that they force wellhead prices really low, thus forcing producers to shut in productions. You would think that futures are driven by spot prices, but practically they could be out of whack due to locational issues. I don't believe UNG (with no fresh money) would consistently move gas prices one way or another. I'd rather believe that GS's recommendations work better in this regard. Lastly, as I said in one of my earlier posts, the only "reasoning" behind the drive all the way down to $2.5 is that we needed bring down prices low enough to do two things: (1) tile S/D balance to make sure to avoid a storage box, and thus to (2) form THE bottom.

Natural Gas Trading: Right Now, It's the Wild, Wild West

A few comments ---

1. Contrary to the widening contango argument due to UNG roll, we actually have just seen the opposite.

2. It is hard to be sure what impact UNG roll has on prices in general, as it sells and buys at the same time.

3. I actually don't see the UNG over NAV premium necessarily going away that fast due to reasons: (1) retail investors try to jump in to catch the rally as there is generally lack of better alternatives (2) even UNG decides to offer new shares, where is the money going to be put at due to CFTC's limits? I see the premium being diluted, but not like completely removed.

If UNG Re-Opens, Should Investors Bite?

I think it is a great timing to reopen UNG at this time from its management's perspective. In other words, it is much politically easier to remove the premium in a rallying market.

Just like today, NG ran up 12% but UNG only 2%, thus cutting the premium by 11% to the current ~6%. One or two more sessions of this will completely bring UNG back to NAV.

As much as UNG investors are in great sorrow to see another opportunity slipping away, they nevertheless got 2%!, which they won't have got if they stayed sideline. The bottomline is --- there is limited way to invest in NG unless you traded futures.

Rough Times Ahead for Natural Gas

On UNG, unless you trade futures, it is still a good way to invest in natural gas. Sure, it won't capture all of the profit in a contangoed situation, but it still gives you nice chunk of the bullish trend. The premium bothers me as well, but hey, as of this morning, the premium dropped to below 10% for a short time!

What this premium really means is that it exaggerates things on both sides -- it hurts when there is a downturn in gas prices, but also remember that it helps when there is a upturn as more people try to come in.

Rough Times Ahead for Natural Gas

One thing that a lot of people have missed is that --- underlying fundamentals are improving rapidly, which means we will most likely not have a storage congestion issue by end of Oct. This is the reason why we have seen prices running up so fast. As long as we don't finish sustainablly higher than european prices (~$4), I am not surprised to see prices going even higher.

Natural Gas ETFs: Not a Good Investment

Good summary on NG ETFs.

Couple of puzzles to me ---
1. I did a quick comparison of UNG and GAZ. What caused the runup of GAZ between roughly 8/18 and 8/25? which you don't see in either UNG or NGX9 (Nov futures GAZ is supposed to track?)

2. If you look at chart of UNG, you don't seem to see a "sharp rolling loss" around the 4-day roll window in each month beyond the underlying futures price changes (up do down). Does UNG have a mechanism to "spread" the rolling losses across the month?

Newfield Exploration: Dealing with Lower Gas Prices

2.5 bcfe isn't going to do anything to turn the situation around. I like to see ~100 bcf removed before calling a bottom in prices. But what NFX did today probably will quickly trigger others to follow.

Natural Gas: Was Thursday Capitulation Day?

Prices nevertheless tumbled on smaller than last year storage number is primarily because same time last year weather was so mild. So on a weather-adjusted basis, the current fundamentals still suck (or, I should say, not good enough).

Prices need to stay low or even lower for a sustainable time (weeks) to force marginal guys get serious and cut back output. Before that happens, I am expecting a significant overshoot on the downside and then, not surprisingly, a same dramatic rebound. Looking forward to exciting weeks ahead.

The UNG Dilemma: Doing What's Right vs. Making Money

I think the selling should continue as a storage box scenario still looms large. The trend will only reverse when there is convincing evidence either producers have to shut-in or there is demand support as a result of low gas prices or weather.

NG had been testing the bottom for quite a while, with the previous new low only a month ago. Given that we are already late in the summer, what market could do now is to do it "once for all" --- that is, crash the prices "more than enough" to ensure to avoid a stoarge box, and then only see a bull market back afterward.

UNG Hasn't Changed the Laws of Natural Gas Supply and Demand

Today is the first of the 4-day window to roll UNG from Sep to Oct. I think UNG played a role today by "artificially" widening the Sep to Oct gap -- front is down 14c, and 2nd month is down 9c. I have not seen this kind of delta (5c) very often. UNG certainly brings more volatilities to the market, but I don't think it affects the fundamentals trend --- even without UNG, prices won't necessarily be lower than current level, as we are already close to marginal producers' cash costs.

Couple of coments/questions:
1. NGU9 is down 4% today, but UNG only 1%. Can anybody explain why? I think that the two things are already different beasts with reasons including --- UNG can only seek gas "proxys" as CFTC limits its direct futures holdings & UNG is starting to behave like a "close-end" fund as there won't be new shares. For this reason, even though I think NG prices will probably still be soft, I bought some UNG today.

2. There is a potential problem with UNG to watch, though --- with front futures contract continuously going lower, the contango is steeper, which means larger rolling losses.

Is a Natural Gas Bottom Coming?

I'd say that fundamenally I start seeing a bullish turn in gas market, which we had not seen in almost a year. The question remains now is whether or not the improved balance will overcome the bearish pressure from storage overhang and lack of near-term weather --- within the next 100 days.

Rig counts vs gas output is always a mystery to me. But I tend to believe that it is the producers who know their own game best, and having said this, I am actually bullish to see that rig counts have been bottoming out.

Bullish on Natural Gas? There's a Smarter Way to Play

It is an interesting trade, as the spread has a reason to shrink in either up or down move of the forward curve.

Btw, NG prices surely still have downside risk as storage is still accumulating, but I doubt NG prices will go much lower than current levels, with reasons being: (1) $1 or $2 don't even cover spot costs of some marginal producers; (2) I agree there is alot of gas out there, but producers won't necessarily produce if prices don't improve.