ETFs, Leveraged ETFs, Sector Funds

[No-Quarter]

The last line in the below update from this morning has been consistent by the author for many weeks now, and what I have been using as a NatGas 'North Star'. I have held BOIL through the current contango unwind period, and will look to buy more on dips. Payday should be late Dec or Jan.

GLTY

Natural Gas Prices Soar In Sixth Best September Day Ever As Bulls Regain The Advantage On Improved Temperature Outlook, Falling Production & Rebounding LNG Exports; Oil Flat After Bullish, But Tropics-Influenced, EIA Status Report; EIA Projected To Announce Bullish +72 BCF Natural Gas Storage Injection In Today’s Report; Gas Demand To Rise Today On Warming Temperatures & LNG Exports

6:00 AM EDT, Thursday, September 24, 2020

Well, that was unexpected. After two generally dismal days of natural gas trading—first for the front-month contract on Monday and then for the later term contracts on Tuesday—prices spiked across the board on Wednesday.

The front-month October 2020 contract gained 29 cents or 15.9% to settle at $2.13/MMBTU, erasing this week’s losses and then some. As the Figure to the right shows, it was the sixth largest daily September gain all time, and the largest in over a decade. The +31% spike on September 29, 2009 was the largest but this, and each of the five days ahead of yesterday’s performance, occurred in association with the expiration of the previous contract in a state of steep contango. Arguably, this makes yesterday’s move the largest pure daily September gain, topping the +15.2% from September 10, 2009. The November 2020 contract, which will take over as the front-month next week, gained 20 cents or 7.6% to settle at $2.79/MMBTU, more than erasing the prior session’s -4.2% loss while the Winter 2020-21 contracts largely erased Wednesday’s losses.

The past two weeks have been an exercise in stomach-churning volatility for both natural gas bulls and bears. 10-day average natural gas volatility stands at an incredible +/-6.2% per day, nearly 5x higher than last year’s +/-1.3% per day. This level of volatility would be exceptionally high even during the heart of the winter heating season when model watching becomes king, much less the traditionally tranquil cooling and shoulder seasons.

This volatility has been driven by fervent, but opposed, positions by the bulls and bears. The bears point out that the storage surplus remains over +400 BCF—and really hasn’t narrowed much all summer—and the South Central Region is in serious jeopardy of reaching capacity by November. The bulls argue that steep year-over-year declines in production coupled with record LNG exports later this Fall mean a very tight supply/demand imbalance that will quickly eat into the surplus, regardless of whether its +300 BCF or +400 BCF heading into the heating season. Yesterday, the combination of a sharp daily drop in production, rebounding LNG exports, and an improved near-term temperature outlook made the bullish argument look the more compelling and catalyzed a short squeeze. I expect this volatility to continue and is certainly possible that we see a reversal back lower in the days to come. However, long-term, I continue to feel that the bulls will win this one—a rarity in what has been a stifling bear-controlled market for much of the past decade. I continue to maintain a $4.00/MMBTU Winter 2020-21 upside price target.