Back Up Your NG Truck One More Time
Seeking Alpha Analyst Since 2013
Summary
- I identified key factors for a buyable low in NG termed "Back up the Truck" moment.
- The first "Back up the Truck" call nailed the low in AR and has seen up to 500% returns.
- Right now is another "Back up the Truck" moment - and it's likely to be the last.
Writing in the midst of personal chaos so will be very economic with words... I earlier identified two simple factors for an NG low:
- Reversal in COT short interest ~6 months prior (this happened in Feb)
- Front Month NG sets new low while equities do not (This happened in April and again now)
Lots of other technicals and fundamental analyses help, but those aren't unique to NG.
In my post "Back Up Your NG Truck" on April 5th I posted the following:
This is how the Contrarian's (and hence my own) preferred equity, AR, has done since then:
Well, we've run into this same setup again:
We are finishing up a corrective count and could rocket once this is done (if it didn't already wrap up last week):
This low would be a "Wave 2" and 2nd waves usually happen when fundamental conditions are bad/worse than at the low. They are also intended to convince the crowd that the trend is still down:
Lots of people talking about low prices and storage, but as I referenced in my April post, storage always looks scary at the NG price lows.
In terms of production, NG rigs got cut 60% the last 12 months. There's ~9 months lead between rigs and production. Last year's rig count really started falling off in June 2019 so we are just starting to see the impact of the NG rig count reductions. Per BlueGold Research:
And the first half of 2021 is going to see a huge drop off of in associated gas from shale, per Art Berman's "Thought Expirement":
So when you look at estimates that put winter NG at very high storage levels... the worst of the demand hit is already here and that's only going to improve. The supply hit has barely shown up and it's going to accelerate through next summer at a pace we've never seen.
Rigs take 12 months to show up in production. It's going to be 14-26 months before there is a positive slope on the associated gas production curve. $60 oil wasn't enough to keep the rig counts up before and decline rates meant decreasing associated gas at those pre-covid levels.
And demand is actually UP yoy, as Z4 has pointed out:
Analyst's Disclosure: I am/we are long SWN, AR, RRC.
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