ETFs, Leveraged ETFs, Sector Funds

[No-Quarter]

I am watching NatGas again this week.

Take a look at the BOIL chart. To me it is over extended to the top side. IMO this has occurred over the past 2-3 weeks for mostly geopolitical reasons, but also production output has remained low for the past 2-3 weeks.

Also, one more blast of cold air expected in the South east, and East Coast later this week end weekend.

https://www.weather.gov/gjt/ColdFront

I am waiting/watching/looking for this to turn around and be positioned in KOLD for a quick +50% late this week or early next week (once this weekends cold snap is old news). IMO this expected KOLD reverse may be quick and occur over this coming weekend presenting a next Monday gap up in KOLD.

I am looking to get into KOLD at ~$10 this week, and out at ~$15 next week.

GLTY

FYI, this mornings NatGas update -

Natural Gas Falls On Friday, But Still Notches Seventh Weekly Gain In The Last Eight Weeks As Prices Tap 14-Year Highs; Production—Or The Lack Thereof—Will Dictate Natural Gas Price Moves This Spring, But Are Investors Too Pessimistic? Gas Demand To Fall Today As East Warms; Powerful Heartland Storm System To Dominate Weather Pattern In The Week Ahead

6:00 AM EDT, Monday, April 11, 2022

Natural gas pulled back on Friday, but the week was still a big victory for the bulls as prices reached their highest seasonal levels since 2008. The front-month May 2022 contract dipped 8 cents or 1.3% on Friday to settle at $6.28/MMBTU, after trading as high as $6.50/MMBTU early in the morning. Nonetheless, the commodity still finished the week up a spectacular +9.8%, its fourth straight weekly gain and seventh out of the last eight weeks. Thursday’s close was the highest since December 2, 2008 at the tail-end of that year’s commodities bubble.

Natural gas has been the beneficiary of both bullish near- and long-term catalysts, fueling the move to 14-year highs. Near-term, the April temperature outlook continues to look consistently colder than normal with the injection season hiccupping its way to a start-and-stop onset. At least one more slug of artic air is poised to impact densely-populated areas of the Lower 48 through April 20 before we begin to see consistent, double-digit daily storage injections, which will be sufficient to drive the storage deficit versus the 5-year average back above -300 BCF.

This time of year, however, such late-season shots of arctic air are typically sold into as there is no near-term threat of any sort of storage crunch. What makes this year different in the minds of bullish investors continues to be weaker-than-expected production. After topping 97 BCF/day in late December, some investors saw output on a quick path to 100 BCF and a loose supply/demand imbalance. It is for this reason that prices traded sub-$4.00/MMBTU as recently as January 21. That turned out to be a head fake, however, with output quickly falling back towards 90 BCF/day in mid-to-late January, aided be a series of freeze-offs. Production has since struggled to reclaim the 95 BCF/day level, as shown in the Figure to the right.

$6.00+ natural gas prices, in my opinion, represents an expectation by bullish natural gas investors that production is not going to get back to 97 BCF/day anytime soon, much less 100 BCF/day. I feel that this is excessively bullish. While E&Ps have pledged to curtail aggressive increases CAPEX in order to return value to shareholders and long-standing decline rates will blunt the impact of new wells, prices at 14-year highs and highly attractive margins will eventually have their way. On Friday, Baker Hughes announced that the natural gas rig count ticked up another 3 rigs to 141 total active rigs. This is the highest since October 11, 2019 and is up +50 rigs year-over-year, as shown in the Figure to the right. Additionally, the oil rigs—which have the potential to generate associated gas production–jumped by a steep 13 rigs to 546 rigs, up a massive +209 rigs versus 2021. There can be a 6-12 month delay between the time a rig begins to drill and the time that well realizes any output and with this latest ramp up beginning in mid-January, as shown in the Figure, we probably won’t see these gains until late 2nd or early 3rd quarter. However, the longer that prices hold above $5-$6/MMBTU, the more robust the eventual response will be. With powerburn likely to see pressure from renewables and LNG exports, while heavily supported by European demand, unlikely to see significant new capacity added this Summer, an increase in production back to over 97 BCF/day could add more than 500 BCF of storage between now and November, rebalancing the market.

I am not a natural gas bear. As I’ve discussed previously, I remain confident that we are still in the early-to-mid stages of a multi-year bull market. However, I do not believe that $6/MMBTU natural gas is supported or sustainable. I am maintaining a $5.00/MMBTU downside price target for the next 3-4 months.

As a result of this over-extended thesis and associated short bets, my Oil & Natural Gas Portfolio registered its first weekly loss in three weeks last week and pulled back from year-to-date highs. The Fund lost -4.1% to reduce year-to-date gains to +28.4%, or +102.4% annualized. While I was tempted to build my natural gas short positions pretty much each day of the week, I refrained due to concern that sentiment was becoming decoupled from fundamentals and that the commodity could surge higher in a burst of irrational exuberance. As it stands, I am currently holding a short BOIL stake worth 20.6% and a long KOLD position worth 2.6%. Any further additions would come via KOLD to limit downside risk. Meanwhile, I did make a single trade on the week. As a concession to lofty natural gas prices, I did initiate a long stake in Antero (AR) on Thursday worth 8.3%. This company has minimal hedging and will see very strong free cash flow even if and when prices retreat to my $5.00/MMBTU downside target. Already, this position is up +7.7% from my basis. I am opening with a $40/share upside price target in the name, representing +21% upside from current levels. My cash position stands at a comfortable 38.1%, providing significant cushion and the means to boost either long or short positions. Click HERE for more on my current Oil & Natural Gas Holdings.

Over the weekend, natural gas demand held roughly steady as unseasonably cool temperatures across the East and Rockies kept demand strong. I projected nearly flat <1 BCF/day injections Friday, Saturday, and Sunday, all bullish versus the 5-year average +6 BCF/day. However, gas demand will swiftly drop today as much milder temperatures overspread the Eastern Seaboard. Highs will warm around 10F regionwide, with Raleigh, NC seeing the mid-70s, Washington, DC the mid-60s, Philadelphia, PA the lower 60s, and New York City, near 60F, each up to 5F warmer-than-normal. Across the Midwest and Ohio Valley, most areas will see seasonally mild readings within 5F of normal. On the other hand, highs will be unseasonably chilly across the Rockies and Pacific Northwest as the next wave of arctic air gathers strength. Remarkably, Portland, OR is under a Winter Weather Advisory this morning for wet snow in the surrounding hills to near the valley floors. Highs in the city will only reach the lower 40s today, 15F below-average. Further east, Boise, ID will also be stuck in the lower 40s while Billings, MT will see the mid-40s, each 15F-20F colder-than-normal.

Nonetheless, the Eastern warm-up will dominate the pattern and today’s forecast mean population-weighted nationwide temperature will warm by +3.1F from Sunday to 57.8F, +1.5F above-average. Total Degree Days (TDDs) will fall to 9.6 TDDs, the 16th fewest for April 11 in the last 41 years since 1941. Click HERE for more on today’s temperature and degree day outlook.

Based on this forecast and early-cycle pipeline data, I am projecting a +6 BCF/day daily natural gas storage injection, 6 BCF larger than yesterday’s build and very close to the 5-year average. By tonight, projected Realtime natural gas inventories will rise to 1411 BCF while the storage deficit versus the 5-year average would hold steady at -305 BCF. The year-over-year deficit will inch lower by 1 BCF to -444 BCF. Click HERE for more on today’s projected injection and Realtime natural gas inventories.

Looking ahead, the weather pattern this week will be driven by a large scale storm system across the Heartland. This system will bring up to 2 feet of snow to North and South Dakota and will be a major wind maker across the region. In the strong southerly flow ahead of the system across the densely-populated East, highs will be 10F-20F warmer-than-normal. This will drive daily storage injections into the double digits on Tuesday and Wednesday, as shown in the Figure to the right. It won’t be until the weekend that the airmass makes its way east of the Mississippi River and brings a spike in nationwide demand. For the full week of April 9-15 that ends this Friday, I am projecting a +44 BCF injection, a neutral 2 BCF bearish versus the 5-year year average but still the third smallest injection for the week in the last 5 years. Should it verify, natural gas inventories would rise to 1450 BCF while the storage deficit versus the 5-year average would narrow to -292 BCF. Click HERE for more on this week’s projected injection.