Wt Nat Gas 2x Discussion Threads

[snobtimus shaime] 14/9/2009 10:38

Wise Reading, ETFs are not always as simple as they seem

[gdasinv2] 14/9/2009 09:23

When it was bootom $2.14 - now gone back $2.98 - good recover - but this bottom will stand long - as Energy has been key - particularly winter on way - Its going to be volatile but long term quite +ve

[rat attack] 13/9/2009 20:14

RIGGERDIGGER - good read especially on UNG

[riggerdigger] 13/9/2009 18:04

Interesting read

[navyan] 13/9/2009 17:32

thanks pbracken, in terms of time scales, there is very good chance the gas price will go higher long term(in 2010). But short term, I have read some complete opposite views of where the gas price could go.


EIA Short-Term Energy Outlook
September 9, 2009 Release



EIA projects the monthly Henry Hub natural gas spot price to average $2.32 per thousand cubic feet (Mcf) in October, the lowest monthly average spot price since September 2001. Natural gas inventories likely will set a new record high at the end of this year's injection season (October 31) reaching more than 3.8 trillion cubic feet (Tcf). The projected Henry Hub annual average spot price increases from $3.65 per Mcf in 2009 to $4.78 in 2010. However, upward price pressure next year is limited by the sensitivity of natural gas use in the electric power sector to higher natural gas prices and continued expansion of U.S. natural gas production from shale formations.


and yet, some other 'experts' see gas price under $3 as a steal. as some articles I posted above.

the lastest EIA short term forecast(doesnt look good to me)

Overview (For the Week Ending Wednesday, September 9, 2009)


Do you take much notice of this EIA forecast? thanks in advance for any thoughts.

[pbracken] 13/9/2009 14:20

navyan - re the propsects for gas. $6 must be realistic, but that price (around twice what it is now) converts (in theory) to around $4.20 for LNGA. I suspect the most you can hope for will be closer to $3.50, precisely because the pullbacks (leveraged don't forget) will act as a drag on the upside.

Each time NG falls in price, you have to recalculate the upside from the corresponding low in LNGA. It's the proverbial moveable feast writ large and it makes medium term targets well-nigh impossible to make. Book profits relentlessly (if you get a sniff of any, as a lot of traders did last week) and apply your stops with discipline.

Best of British guys.

[navyan] 13/9/2009 13:09

Bulls: Natural Gas Price Forecast



Natural Gas Price Forecast
The Future of Natural Gas: It's Time To Invest



Bears: Short-Term Energy Outlook

[navyan] 12/9/2009 22:57

well, good luck to u mate.

[triples] 12/9/2009 22:47

Hi navyan,

In the long term it will just keep going down if the futures curve stays in contango.

My averaging down will be short term... (I hope)

I bought these at around 1.70.

It'll open at 1.40-ish on Monday am and I'll buy some more. I think it will move up a few % by the time the US opens. I can either go in large at 8am and sell at 1.30pm, or take my chance to see what happens in the US morning session.

Fingers crossed, triples

[navyan] 12/9/2009 22:08

triple, no offence but if you think this will just keep going down, then I cant understand why would you want to average down? you want to cut the losses and run, dont you?

[triples] 12/9/2009 19:45

The ETF vis a wasting asset and will be unlikely to reach any price from three months earlier because so much of the fund has been spend buying the cointango to get to the next month's future.

My best bet is to do as pbracken says and buy the dips so as to average down on my buys of Friday morning.

navyan, this ETF is not like a share - it is a place where PIs put their money before it is transferred across to the smart speculators trading the contango. Slowly but surely the pot of money goes down month by month, with occasional relief rallies when gas futures actually jump up.

[acm434] 12/9/2009 17:44

I've just started looking at this one. Am I correct in thinking that the price of the fund is dependent on how well the managers do in trading futures contracts rather than tracking the underlying price of gas as a tracker fund would? TIA.

[navyan] 12/9/2009 17:32

thanks for the thoughts guys. I realised this game isn't as fair as I thought it was. But I just can not imagin mid term or even short term LNGA will not go back up to over $2 again. with the natural gas price touched the all time bottom of $2.5 last week and retrace and making higher lows.

like you said before pbracken, my old target for LNGA was short term $2 and mid long term $4.5-$6. do you see this go back up to $6 if the natural gas price trading at $6 again this winter pbracken?

[pbracken] 12/9/2009 14:35

Long and hold-only trades are madness in this ETF game. Take the other week for an example.

Gas hit a low of c240 cents and LNGA fell to c120 cents; it then flew on to 337 cents (with a few intraday pullbacks) and LNGA hit 175 cents. But (as someone else rightly pointed out) the last time gas was 337 cents, LNGA was trading over 200 cents. When LNGA last hit 170 cents, gas was around 275 cents - yet on Monday when gas opens around 300 cents, LNGA will trade (probably) around 142 cents.

Such is the power of the futures curve when it works against you. I suspect anyone LONG below 170 cents will make money if they can hold their nerve - because gas prices are unlikely to retest the low of 240 cents. But the smarter move would be to BUY on weakness next week in order to take advantage of the likely upswing - since the profits will susbsidise any loss-making longs. Of course, it's a risky strategy - because buying the low is never easy. At this remove, I'm likely to go LONG again If LNGA hits 120 cents (for a bounce to 150 cents). Of course, I may modify that intention according to the price action on gas.

[wookie77] 12/9/2009 13:23

Can someone explain what this means for LNGA

[triples] 12/9/2009 12:28

navyan,

Great article. Thanks.

The problem for the gas ETFs is much larger than I realised. This technical aspect will significantly affect long-only trading. Food for thought.

cheers, triples

[navyan] 12/9/2009 11:17

Natural gas funds scramble for cover

By Gregory Meyer in New York , Financial Times, 10 Sep 2009

Extreme dislocations in US natural gas markets are poised to cannibalise buy-and-hold investors' holdings in the commodity, potentially doing the job for regulators preparing an aggressive crackdown on their positions.

The premium of gas for delivery in November has widened to 37 per cent above October, near record levels, as supply far exceeds current demand.

The price gap could cull the positions of index funds in the natural gas futures market as their billions are spent on the more expensive futures contract.

The Commodity Futures Trading Commission, the US watchdog, is pondering limits to the number of contracts these investors can hold on concerns that their concentrated weight inflates commodities prices, hurting consumers.

The $3bn United States Natural Gas Fund has been paring futures holdings in response. The market pattern "acts as a tail wind in our efforts," John Hyland, chief investment officer, said.

To avoid the hassle and expense of buying and storing raw materials, passive investors typically buy into vehicles mirroring commodity indices, such as the S&P GSCI, which includes natural gas.

Others have piled into single-commodity exchange-traded funds such as Mr Hyland's. These investments try to replicate spot commodity prices by owning futures, liquidating contracts before they expire and replacing them with later-dated ones.

The GSCI, tracked by about $60bn in investor money, began rolling out of the October gas contract this week, buying November futures. US Natural Gas, the largest gas ETF, rolls next week.

With gas for delivery later on priced far higher than imminent futures, it means the funds will be able to buy fewer futures contracts with each passing month.

"The market structure is going to take care of the natural gas positions held by index funds more than the regulators," Olivier Jakob, of Swiss-based energy consultant Petromatrix, said. "But it's going to be at a cost to the shareholder."

The US Natural Gas Fund owns 23,815 gas futures for October delivery on the New York Mercantile Exchange, almost quadruple the exchange's official "accountability level". It also holds cash-settled gas futures and swaps.

The routine of selling low and buying high each month adds to the woes of exchange-traded products holding natural gas, which have attracted more than $4.7bn this year from investors spying a market floor.

With CFTC limits looming, vehicles such as US Natural Gas and Barclays' $190m iPath Dow Jones-UBS Natural Gas sub-index notes have stopped issuing new units, allowing their net asset values to stray from the benchmark gas prices they are meant to follow.

Traders also see opportunities to trade around the index rolls on the assumption their sales will depress spot prices, already at seven-year lows of less than $3 per million British thermal units. Société Générale recommends betting on a decline in prices.

[triples] 12/9/2009 08:16

No probs...

Here's the same chart but set on Daily (and made a bit larger):



It would look like pbracken may be right in that the low has now happened.

If the fundamentals of gas shut-ins happening and half the gas rigs being mothballed are correct, then supply to the gas storage (also at a peak) will start to reduce. We'll see gas storage numbers coming down I suspect, the gas future going up and some rigs being put back into action. However, unless the US economy looks bright, I can't see gas climbing to its previous heady heights for a while.

My concern about LNGA & NGAS is getting into and holding a losing position (like I did yesterday) and getting chewed up by the contango.

pbracken is absolutely spot on when he says you have to time this one - it's as bad as option time decay! Have a look at the quotes and the contango - the amount the near month's future price is less than the following month's:



The gas ETFs are long and have to buy the future. Each month they have to roll from Sep to Oct, Oct to Nov, etc. So each month they have to pay the contango to stay in the market. That is why the chart of LNGA & NGAS has reduced so much - the prices of these ETFs want to go to zero whilst there is a contango. (If there was backwardation (very unlikely), then we'd se the price wanting to head up, not down.)

With gas, the contango can be a bit seasonal too, but if you are in the market all the time like the ETFs are, then just look at the contango they face across the next year. Dec09 to Dec10: 4.800 to 6.577, ie, 1.777, ie 37% of the Dec09 price will have to be paid by the ETF to stay in the market by Dec10. That's 3% a month hill to climb....if it's linear.

But it gets worse: the contango isn't linear: it's bigger in the near months which is where the liquidity is. So the ETF managers have to roll to the next month when there is sufficient liquidity - sell the near month, buy the next one out - but this becomes a race between the various managers/longs keeping a position in the market.

[The best way to really play a non-linear contango is to put on a calendar spread on say jan/feb, (ahead of the big ETFs), wait for the gap to widen to your advantage and then roll it to the next month. You trade is smaller numbers than the ETfs and so you can front run the contango widening. As is always the case with these things, it carries risk and extra costs (wider bid/offer). Don't be tempted to go too far out (very poor liquidity) and pay attention to seasonal effects. It may be easier to do on oil as there is less seasonality, but the differences in contango between each month is less. The other risk is that the whole shape of the futures curve changes and you contango trade gets flattened by much sharper economic events. That's why I don't do this cos it really is for smart nimble people.]

What is clear is that the fundamentals for gas in the US have got to a point where the price of gas looks like it will rise.

How do other people plan to trade NGAS & LNGA? Day trade? Only UK morning session? Whole of UK session, ie, US morning session too? Hold overnight?

Views welcome cos I could do with some helpful suggestions.

dyor as ever, triples

[debbiegee] 12/9/2009 06:50

Thanx triples great link.
I wonder if maximoney i still around if he could put it in the header ?

[navyan] 11/9/2009 21:33

wookie, I got 13K in this. will just hold and be cool. worse case, it do a double bottom instead of V shape.