-->

Portfolio Holdings



Jump To: | Intraday Portfolio Data | Investing Commentary | Holdings By Position & Sector | Daily Portfolio Performance | Last 10 Trades |



Mid-Week Investing Commentary


Natural Gas Tumbles 5% On Tuesday Despite Cooling Temperature Forecast & Large Undervaluation; Assessing The Impact Of The Sell-Off & Cheap Natural Gas On Supply/Demand Balance; EIA Forecast To Announce Bullish Crude Oil & Refined Product Inventory Numbers In Today's Report


Wednesday, December 13, 2017
Nat gas continued its swan dive on Tuesday, tumbling 14 cents or 5.3% to settle at $2.68/MMBTU. While similar sell-offs over the past few weeks have been attributable to volatility in the extended temperature outlook, Tuesday's cannot. While not brutally cold by any stretch, the late December outlook remains neutral to mildly favorable for natural gas demand, and actually trended colder during the trading session. Thus, this latest phase in the ongoing correction cannot be blamed on Mother Nature alone. Perhaps a large long position facing a margin call was forced to close at a large loss. Perhaps a renewed concern over record production spurred a new wave of short selling. Perhaps the commodity tripped some technical barrier leading to a wave of mathematics-driven selling. Whatever the cause, Tuesday's sell-off drove the price of natural gas to its lowest close since February 24, 2017, a time when natural gas inventories were near a +300 BCF storage surplus versus the 5-year average...

Continue Reading Full Article...


Holdings By Sector
Holdings By Position



Portfolio Performance



Trading History



Mid-Week Investing Commentary

Natural Gas Tumbles 5% On Tuesday Despite Cooling Temperature Forecast & Large Undervaluation; Assessing The Impact Of The Sell-Off & Cheap Natural Gas On Supply/Demand Balance; EIA Forecast To Announce Bullish Crude Oil & Refined Product Inventory Numbers In Today's Report


6:00 AM EDT, Wednesday, December 13, 2017
Nat gas continued its swan dive on Tuesday, tumbling 14 cents or 5.3% to settle at $2.68/MMBTU. While similar sell-offs over the past few weeks have been attributable to volatility in the extended temperature outlook, Tuesday's cannot. While not brutally cold by any stretch, the late December outlook remains neutral to mildly favorable for natural gas demand, and actually trended colder during the trading session.

Year-Over-Year Natural Gas Price Comparison

Figure 1: Click here for more information on on natural gas prices

Thus, this latest phase in the ongoing correction cannot be blamed on Mother Nature alone. Perhaps a large long position facing a margin call was forced to close at a large loss. Perhaps a renewed concern over record production spurred a new wave of short selling. Perhaps the commodity tripped some technical barrier leading to a wave of mathematics-driven selling. Whatever the cause, Tuesday's sell-off drove the price of natural gas to its lowest close since February 24, 2017, a time when natural gas inventories were near a +300 BCF storage surplus versus the 5-year average compared to the -50 BCF (and growing) storage deficit we are seeing now. Crude oil, too, saw a reversal after Monday's gains with WTI losing 85 cents or 1.5% to settle at $57.14/barrel ahead of today's EIA Petroleum Status Report. And after Monday's jump to a new multi-year high on news of a major North Sea pipeline shutdown, Brent oil dropped $1.35 to settle at $63.34/barrel.


In the face of the somewhat inexplicable trading action in the natural gas sector, I made no trades on Tuesday and my Oil & Natural Gas Portfolio dropped 0.8% on the day as it continues to coast lower, but is avoiding the crash-and-burn mentality of natural gas. Gains since May 1 now stand at 27%, down just over 4% from the 52-week high set 2 weeks ago.


With the sell-off, natural gas futures contracts are trading under $3.00/MMBTU in 23 out of the next 24 months through December 2019, with the sole exception being the January 2019 contact at $3.01/MMBTU. Importantly, natural gas is now down by over 20% year-over-year for each of the next 4 month's futures contracts as shown in the Figure to the right. The January contract is down 24% from last year's $3.51/MMBTU close and the April contract is down 22% at $2.61/MMBTU from last year's $3.36/MMBTU close. This comes despite natural gas inventories being more than 200 BCF lower than last year at the same time.


Intraday Natural Gas Powerburn With Year-Over-Year Comparison

Figure 2: Click here for more information on on natural gas powerburn.

This year-over-year discount is important because of its implications on natural gas demand. Besides the temperature forecast, much of the focus in the natural gas sector over the past month or two has been on record natural gas production and increased takeaway capacity across the Northeast and its implications on supply/demand balance with many (including yours truly) fearing a supply/demand mismatch this spring. While supply is indeed up a bearish 5+ BCF/day year-over-year, much less attention has been paid to demand. LNG exports are up around 1.6 BCF/day year-over-year (and poised to go higher once Cove Point begins exporting within a few weeks) and exports to Mexico are up as much as 0.5 BC/day depending on the week. This increase in export demand alone takes the net gain in supply down towards 3 BCF/day. Additionally, powerburn demand, or natural gas used for electricity generation, is up 1.5-2.0 BCF/day over the past month, which took place when natural gas was trading above $3.00/MMBTU for much of the period. Now that natural gas is trading 10% lower under $2.70/MMBTU, I expect that we will see additional fuel switching and that the year-over-year gain in gas demand will rise, cutting further into or even countering the gains in production. Additionally, we may see a similar increase in market share for heating demand, as represented by the far more temperature-dependent residential/commercial demand, displacing coal and other fuels. Overall, the cheaper natural gas becomes, the more likely that it is that we will see an increase in demand that could largely cancel out the gain in production. And with the temperature forecast neutral to slightly favorable over the next few weeks, it seems probable that the natural gas storage deficit will continue to widen. For long-term bulls, an almost ideal scenario would be for natural gas prices to actually remain suppressed for a few weeks to allow for fuel switching to take place, particularly in the setting of a favorable temperature pattern, and bolster the storage deficit further. Overall, considering these variables and with natural gas now undervalued according to my Fair Price model by over 20% versus a Fair Price of $3.42/MMBTU based on current inventories alone, the recent sell-off seems to have over-extended to the downside and I feel that there is significant upside to the commodity versus limited near-term downside.


Of course, this analysis may come across as somewhat biased as my Oil & Natural Gas Portfolio remains net long natural gas. My DGAZ short position--a long bet on natural gas--continues to be my largest holding at 24.1% of my portfolio. The holding has been crushed recently and is now down 43% from my basis. These losses are offset by a short position in UGAZ worth 8.0% of my portfolio, which is up 56%. Overall, net long exposure stand at 16% of my portfolio. Typically, this would be reaching the upper threshold of what I am comfortable with from a risk perspective and I would consider either increasing my UGAZ position or reduce my DGAZ position. However, with the large undervaluation and the temperature forecast at least neutral for the next few weeks, I am cautiously confident in holding this position. My near-term price target is $3.00/MMBTU, at which point I will re-assess the fundamentals of the commodity and decide whether to continue holding, go to cash, or slip to a net short position. Should natural gas rebound from here, not only would the portfolio see directional gains from the rally, but both UGAZ and DGAZ will be hit very hard by leverage-induced decay, showcasing my strategy of shorting the inverse ETF. For those holding UGAZ from a basis of natural gas over $3.00/MMBTU, it is unlikely that a return to $3.00/MMBTU natural gas will be a return to profitability due to leverage-induced decay. At this time, no matter the size of the undervaluation, I have no plans to add to my position, recognizing that momentum remains solidly in the bearish camp and, while seemingly irrational, further declines in the commodity are certainly possible. However, for a new-comer to the trade, Tuesday may offer an ideal entry point to build a long position.


Forecast Crude Oil Storage Drawdown For December 2-8: 5-Year Historical Comparison

Figure 3: Click here for more information on natural gas inventories.

Turning to crude oil, the EIA will release its Petroleum Status Report for December 2-8 this morning detailing crude oil and refined product inventories as well as production, imports, and exports. Tuesday evening, the American Petroleum Institute (API) announced that it was forecasting a very bullish -7.4 MMbbl storage drawdown for the week, 5.6 BCF bullish versus the 5-year average -1.8 MMbbl draw. As the Figure to the right shows, it would be the fourth largest withdrawal for the December 2-8 period in the full 34 years for which EIA storage data is available. Additionally, the API also announced that it was forecasting a bullish +2.3 MMbbl gasoline build (5-year average: +4.4 MMbbls) and a bullish distillate build of +1.5 MMbbls (5-year average: +2.9 MMbbls). Should these numbers verify, it would be an unequivocally bullish storage week, after a series of lackluster weeks characterized by large oil withdrawals but even larger refined product builds.


With record production, a climbing rig count, and oil approaching the important $60/barrel barrier last week, I took profits on my oil long positions and quickly transitioned to short the commodity. I currently hold a small 5% position short UWT to provide short WTI exposure and a 16% short BNO position to provide short Brent exposure. Because BNO is a 1x ETF, its equivalent exposure to UWT is just over 5%. In hindsight, this trade may have been a bit hasty. However, I continue to feel that oil will have a hard time moving and staying above $60/barrel without a renewed surge in production. With the Brent-WTI spread back above $6/barrel, it is likely that exports will remain strong, almost singlehandedly driving these large weekly withdrawals. For this reason, near term, I would not be surprised to see a move higher in the sector. However, should this spread contract, oil could very quickly start to see a bearish transition. At this time, I will plan to continue holding my oil positions and will consider adding to my UWT short position should oil climb above $60/barrel, assuming that domestic production and the rig count continues to rise.


Disclaimer: Current Portfolio Holdings are released by Celsius Energy as experimental products. While they are intended to provide accurate, up-to-date data, they should not be used as trading recommendations nor should they be used alone in making investment decisions, or decisions of any kind. Celsius Energy does not make an express or implied warranty of any kind regarding the data information including, without limitation, any warranty of merchantability or fitness for a particular purpose or use.