Natural Gas Gets Set For Prime Time: Possible Rally Until Feb 2021 (谈股论金)  9885次阅读

作者: algo , 发表于: 2020-07-29 (1378天前) @ 雅歌

Natural Gas Gets Set For Prime Time: Tracking A Possible Rally Until February 2021
Jul. 27, 2020 8:17 PM ET|33 comments | Includes: BOIL, DGAZ, GAZ, GAZB, KOLD, UGAZ, UNG, UNL
Robert P. Balan
Robert P. Balan
Predictive Analytic Models
Actual trades using guidance from US Treasury, Federal Reserve money flows
Summary
We believe that natural gas may be at the verge of a rally until early next year, optimal peak by February 2021.

A rally likely stems from severe cuts in production due to to side impact of the COVID-19 pandemic. The sharp decline in supplies is swamping the delta of falling demand.

PAM caught the upswing early. We bought NG back-end futures and will be setting up other trades which translate our significantly bullish view on natural gas such as in BOIL.

This idea was discussed in more depth with members of my private investing community, Predictive Analytic Models. Get started today »

Natural gas, the "widow maker," may be in a situation where a new price cycle to the upside has begun (see chart below). For us, at Predictive Analytic Models (PAM), natural gas made a cyclical bottom on June 26 at $1.482 at the NG nearby contract. We will lay out the case of a move back to, and beyond, the $2.7652 five-year average of NG price, and probably beyond.

Natural gas has been rallying for several weeks, and the so-called "test of the low" retraced 50% of the recovery from the June 26 low. That downside probe bottomed in July 20, and the commodity has been sharply higher since then, culminating in a sharp price ascent on Thursday last week.

Why natural gas prices bottomed: fundamentals have become very favorable, and that situation could last
The current natural gas rally was triggered Thursday by a modest storage injection which eased containment concerns and overshadowed worries imposed by the ongoing coronavirus pandemic. The EIA reported an injection of 37 Bcf for the week ending July 17. It marked the lightest build in a four-week string of double-digit injections. Earlier, the EIA reported a build of 45 Bcf for the week ending July 10, which started to ease storage capacity concerns. Declines in inventory injections are a sign of either rising demand or falling production, or both.

Signs of an improving liquefied natural gas (LNG) export environment also helped bullish sentiment. U.S. LNG demand from leading consumers in Asia and Europe is gradually recovering, with prices on both continents recently trading at a premium to the U.S. benchmark.

The bullish sentiment helps, but exports are not primary determinants of NG prices - it is obvious that exports rise AFTER prices rise, and vice versa - exports fall when NG prices fall. Nonetheless, exports are rising again, and September U.S. Gulf cargo cancellations are down considerably, as reported by the Natural Gas Intelligence.

The latest storage figure served as evidence that robust summer heat across the Lower 48 states is driving strong cooling demand and curtailing the risk for storage containment this fall. Robust power burns pointed to continued strong summer demand. The most recent build lifted inventories to 3,215 Bcf. It extended to four weeks a run of sub-100 Bcf additions to gas stockpiles.

Analysts now see the probability of hitting storage capacity becoming increasingly unlikely. This has earlier caused a severe sell-off earlier last week. The situation could even get better - the next injection data could be better - our modeling shows possible build as low as 20 BCF range - about 50% of normal levels.

Forecasters expect continued above-average temperatures into August, a development that could continue to bolster demand at a time when other drivers of energy use are muted by the COVID-19 pandemic. Looking into the first week of August, forecaster see very warm to hot conditions will rule most of the United States with highs of mid-80s to 100s, which augurs well for strong demand. Bespoke Weather Services reported that leading models pointed to renewed temperature intensity, "with above-normal heat for the nation as a whole" over most of the final week of July, according to Natural Gas Intelligence.

Cooling demand and power burns were strong. NatGasWeather said high temperatures were above normal throughout the week covered by the EIA report. Forecaster looks for continued light additions to gas stockpiles into next month.

As a corollary, net inventory withdrawals have not been catastrophic as feared - or as projected by some analysts on account of the COVID-19 pandemic. While, indeed, demand represented by this data is low, it is not a complete disaster. Higher atmospheric temperatures offset some of the lost demand from office closures (see chart below).

Our call for higher prices into the 3.11 plus level in February is also partly explained by our belief that meaningful storage injections may persist into November, at the very least. Moreover, there is the wild card of early winter weather, which leaves the November - January contracts likely to be revalued upwards sharply. The formerly bearish view has left the October/January contracts at a remarkable minus $1.00 pricing by mid-last week.

Further out of the curve, calendar 2021 strip held near the $2.60 mark (see chart above). Given our 3.11 forecast by February 2021, those levels will be vigorously tested come fall. Those levels would generate subpar returns for the gas exploration and production community.

It is more likely now that the NG community will go for sequential production numbers that are flat to lower for the foreseeable future. We also expect a minor early-winter rally driven by those who have astutely managed output to better capture value offered by the shape of the NG curve (see chart below).

This construct is not indicating that the prices in the future, 6 to 12 months from now, will be lower relative to prices today. This construct is simply indicating that demand today for delivery of natural gas is much higher than demand for delivery further in the year.

We anticipate that, in a few weeks, the Month 1 to Month 3 calendar spread (M1-M3) will go into "backwardation" - where further out futures prices are lower than the current, front month. It simply means to say, they want their natural gas now. They want their natural gas now and would rather wait a month than two months, or would rather wait two months than three.

Low production is prime mover for natural gas near-term outperformance
However, the primary determinant of the forthcoming rally in natural gas prices is the severe drop in recent production. If natural gas supply falls quickly, prices will rise even with significantly lower demand. In this metric, supply trends are more crucial than the delta of demand. The current NG output is severely out of whack relative to recent production (see chart below).

The fall in production was due to the sharp fall in the number of natural gas rigs operating in the United States. Baker Hughes said that, as of July 24, there were 68 rigs operating compared to 169 last year at the same time frame.

Energy Information Administration (EIA) was forecasting a fall in 2020 production. They said:

EIA estimates that U.S. production of dry natural gas averaged 89.9 Bcf/d in the second quarter of 2020, down 6.1 Bcf/d (6.3%) from the fourth quarter of 2019. The declines are the result of a sharp drop in drilling activity because of low natural gas and crude oil prices and because of production curtailments.

EIA expects dry natural gas production to continue to decline through the end of 2020. Forecast dry natural gas production in the United States averages 89.2 Bcf/d in 2020, down 3.0 Bcf/d (3.2%) from 2019.

EIA forecasts the low point in natural gas production to occur in the second quarter of 2021 at an average of 83.3 Bcf/d, which would be down 12.7 Bcf/d (13.2%) from the fourth-quarter 2019 peak.

Putting it all together
Here is an ultra-long term outlook in natural gas prices, modeled over the next two years.

ALL THE PRIMARY DETERMINANTS OF NATURAL GAS PRICE PROJECTED OVER THE NEXT TWO YEARS

If we are lucky, we could see Henry Hub Spot NG price at 3.11 by February 2021.

In fact, our forecast of $3.11 by February is probably understated as production shortfalls skew future prices much higher (see chart below).

Predictive Analytic Models (PAM) is currently long natural gas in the October and December contracts.

As from August 1, 2020, PAM ceases offering two-week free trial subions and will raise yearly fees from $700/year to $1,200/year, and monthly fees from $75/month to $170/month.

The rationale: keep the core membership to manageable size so we can properly train/guide subscribers how to use investment-bank trading strategies and tools to grow trading capital exponentially.

Our objective is to create millionaires in the core, by providing real-money trades which deliver more than 1,440 percent in trading performance or better. More details here.

Take this opportunity to avail of the low fees NOW. Please go here.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in BOIL over the next 72 hours.

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PT Larry
Comments5980 | + Follow
Many thanks for the positive article.
What's the better way to play nat gas? Shares like COG and EQT, or ETFs like UNL seem the best to me...... (edited)
28 Jul 2020, 07:50 PMReply2Like

shaner1
Comments1627 | + Follow
@PT Larry - EQT up 3% while Boil was up 8% today. ETFs are best if you have time to buy and sell daily IMO.
28 Jul 2020, 09:14 PMReply1Like

PT Larry
Comments5980 | + Follow
@shaner1 EIA reported good size draw in crude of 10 million b/bpd. If world-wide production is in deficit, this size US draw could continue for weeks.
29 Jul 2020, 11:14 AMReply1Like

Gigem77
Comments5955 | + Follow
Half of that draw was due to lower imports. Refinery utilization is almost back to 80%. ir.eia.gov/...
29 Jul 2020, 12:05 PMReply1Like

eagle1005
Comments7 | + Follow
Better ask, what is a better way to loose in NATG.
29 Jul 2020, 04:28 PMReply0Like

Robert Boslego
Comments6960 | + Follow
Hi Robert, a price objective of 3.11 for February is only 6% above the Feb contract, even with 10x leverage, would leave you a bit lower than your 1,440 % trading performance objective.
28 Jul 2020, 03:41 PMReply0Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » Hi Robert -- of course you are jesting -- that 1,440% objective is not a single trade target, but cumulative.
But maybe you are serious -- no idea.
28 Jul 2020, 04:17 PMReply0Like

Robert Boslego
Comments6960 | + Follow
So that's an annualized cumulative number?
28 Jul 2020, 04:21 PMReply0Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » Robert .. I have good news for you.
Profit from July 1 to end of day today (July 28) is $18,259,898.46.
That means profit from January 1 to July 28 is $50,939,834.26.
That performance delivers these metrics:
Year to date performance is 2,244.42%
Annualized Profit is 4,203.79%
So now I can actually bump up my promise to deliver 1,440% YTD performance.
I can now point to 2,244,42% performance.
You can see the spreadsheet here;
docs.google.com/...
Ask me again at the end of the month.
28 Jul 2020, 05:06 PMReply0Like

Robert Boslego
Comments6960 | + Follow
At the lower 1,440% annualized profit, you will make your subs billionaires (starting with $100,000) in less than 4 years and trillionaires under 7 years !
28 Jul 2020, 05:14 PMReply0Like

Robert Boslego
Comments6960 | + Follow
A profit of $51 million on starting captial of $1.2 million is very impressive indeed for almost 7 months.
29 Jul 2020, 12:27 AMReply0Like

tman1
Comments1186 | + Follow
very interesting. thank you.
28 Jul 2020, 03:18 PMReply0Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » tman -- thanks for reading.
28 Jul 2020, 04:17 PMReply0Like

Brian Cellars
Comments1698 | + Follow
Thanks Robert, an interesting presentation and I agree, the long side looks promising (at long last) and have been trading accordingly.
28 Jul 2020, 12:17 PMReply1Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » Good luck Brian! Thanks for the kind comments.
28 Jul 2020, 12:30 PMReply1Like

gstrfbull
Comments1533 | + Follow
With PAM, do we need luck?
28 Jul 2020, 01:01 PMReply0Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » Frankly gstrf -- No.
(
Thanks.
28 Jul 2020, 01:37 PMReply0Like

PT Larry
Comments5980 | + Follow
@Brian Cellars Are you in the accelerated ETF?
28 Jul 2020, 07:55 PMReply0Like

Brian Cellars
Comments1698 | + Follow
@PT Larry Yes, I'm trading HNU and sometimes HND still, but am leaning strongly to the up side.
29 Jul 2020, 11:27 AMReply0Like

vavemula
Comments423 | + Follow
What are good companies to invest in to take advantage of the improvement in gas prices
27 Jul 2020, 11:15 PMReply1Like

snorekr
Comments563 | + Follow
Did the same today on both ends.
www.tradingview.com/...
27 Jul 2020, 10:27 PMReply0Like

Gigem77
Comments5955 | + Follow
EIA published dry gas production has never exceeded 97 Bcf/d. The Refinitiv data is way out of bounds. Compare with charted EIA data. public.tableau.com/...
27 Jul 2020, 10:12 PMReply0Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » Gigem77
Those numbers are NOT nominal -- this chart is a statistical comparison (a very basic metric) based on a process where the production every year is rebased to 100.
That means for 2018, the year with the highest data point at 113, it simply means that November production in November 2018 was 13 pct higher than in January 2018.
For 2019, it means that the most recent production was circa 7 pct lower than in June.
This is a simple comparative tool, not a nominal graph.
This is the nominal graph using the same data, below:
https://tmsnrt.rs/2OZui5N
28 Jul 2020, 01:14 AMReply1Like

gstrfbull
Comments1533 | + Follow
I always believed Gigem77 was the smartest guy on NG but he/she seems to take stock in what Robert Balan has to say. Hes not 100 percent againt your NG bet. Ive made money following Gigem's bearish views. I'm hoping I make some from R. Balan! (edited)
29 Jul 2020, 01:03 PMReply0Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » So far, so good, bull!
(Knock on wood).
29 Jul 2020, 01:14 PMReply1Like

Gigem77
Comments5955 | + Follow
@gstrfbull thank you. Short gas has been profitable! I'm not convinced the October futures play will be profitable, but the Jan long trade looks good. I'm long BOIL in small size for short term trading. The Oct contract dies in September. Demand tanks in September with storage filling ahead of schedule. Let's see how high this spec money can push things.
29 Jul 2020, 01:18 PMReply0Like

gstrfbull
Comments1533 | + Follow
I'm hoping UNG hits 12sh in Aug. I'm going to sell 1/2 my UNG call options at that point. Let the rest of my Jan 2021s ride. Got my fingers crossed!
29 Jul 2020, 02:05 PMReply1Like

KCI Research Ltd.
Comments4555 | + Follow
Robert:
Terrific article. I am fully on board the natural gas bullish train, and I actually think there is a good chace we see $4 dry natural gas prices in the coming year, potentially this upcoming winter. Natural gas liquids prices are actually leading dry natural gas prices, and they both benefit from the same tailwinds, which were formerly headwinds, namely the byproduct production from oil directed drilling. It has been a long time, and glad to see you are knocking it out of the park this year,
Travis
27 Jul 2020, 09:24 PMReply5Like

Aventador
Comments5835 | + Follow
Travis love your articles but anything short of an absolute mini ice age this winter and most every E&P are in massive trouble. Hedges will be falling off in 2021 like crazy and bankruptcies will be as common as sliced bread. . As for $4 yikes that's a stretch. I think every E&P on the planet will be dancing a jig if they can clear $2.
28 Jul 2020, 12:33 AMReply1Like

Robert P. Balan
Comments3867 | + Follow
Author’s reply » Thanks for kind comments, Travis.
It's been a while.
Regards
Robert
28 Jul 2020, 12:46 AMReply0Like

tenbaggerZ!!
Comments1279 | + Follow
@KCI Research Ltd. while I agree with the author Robert about the upcoming bull run, i won’t give credit to Travis for being wrong in the first half of the cycle completely
28 Jul 2020, 09:57 AMReply0Like

KCI Research Ltd.
Comments4555 | + Follow
@tenbaggerZ!!
Resilience is an underappreciated quality in the markets, IMO.
seekingalpha.com/...
Just look at Robert's trading. Sometimes he does better when the initial move goes against his bigger picture outlook.
Travis
28 Jul 2020, 04:25 PMReply0Like

tenbaggerZ!!
Comments1279 | + Follow
Agree on that point. But also as I evolve in this market, I found flexibility to be of even more importance. Take David Tepper as a prime example of fluidity (40%+ CAGR for 20 years).
28 Jul 2020, 08:00 PMReply0Like