Brian Earl Spilner said:
The explanation of what Freeport reopening means for LNG in more specific terms was hugely helpful beyond just knowing that's the catalyst. So thanks for that.
Beyond that, I am definitely aware of the inherent risk of leveraged ETFs and commodities in a general sense, and have carefully looked at my risk tolerance before doing so with BOIL.
I'm definitely starting to get into the upper end of that, so there's not gonna be much more averaging down for me beyond maybe a couple more buys around $9. From there, it's either cutting losses, or riding the chop to wait for some profit.
Some of your links are paywalled, but I'm definitely going to read up a little more on LNG and the specifics of how futures prices are affected by certain events.
Since you clearly have a very solid understanding of LNG in particular, would your opinion be that there'll be relief bounce into the $4-5 range in the upcoming month(s)? (Provided that colder weather comes through and Freeport finally reopens in February.)
Your spot price at Henry Hub sits at $3.20 right now. Feb futures show ~$3.13 and March shows ~$3.03 right now. Supply has been fairly consistent at 105-106 bcf. That doesn't change much on a week to week basis.
Winter demand is MUCH lower than usual, but still sits at about 118 bcf per week. and another cold spell in the northern states is already priced in, IMO. Impact of a cold spell would either have to be much more severe, longer in duration, or spread more into southern states to actually impact price that much. If you're looking for a huge price move,
Because Freeport has been closed so long, we've built up extra gas in storage. Freeport is one of only like 7-8 export terminals in the US, and is something like 20% of our export capacity. Along with the two large terminals in Louisiana, they're like 70-75% of our capacity.
Even if we start taking out of underground storage when Freeport opens up, we still have probably 400-500 bcf of excess inventory in storage right now. That doesn't get pumped and delivered overnight. Freeport opening up will add ~2 bcf to that demand number pretty consistently (or about 1.7%). 1.7% demand shock impact is going to be muted by our large inventory storage and doesn't mean a 1.7% increase in price anyway because these aren't linear relationships.
Commodities don't really trade on "relief bounces" very much, especially very short-dated futures. They're hyper-focused on supply and demand projections. Technicals can bear out, but the big moves you're discussing are based on supply and demand of the physical product. I don't like the games they've played with Freeport and I won't pretend to be able to time that. I will say that I locked in my company's hedges over the past 2-3 weeks and I'm happy with the fair price we received whether it goes up or down. $4-5 is a huge range when talking about this, but yes, I'd say the S&D situation is going to shift a bit and you likely see $4 spot again sometime soon and I'd expect a move up as early as this week. But if news comes out again and says that Freeport is delayed again, futures will dump.
All that with a big caveat that this is like 1% of my job now, not 100% like it used to be. I no longer build the models myself and spend an hour or two on this every month. I just hedge my company's opex using models my FP&A team builds.
I don't have any open trades on BOIL and don't expect to. Risk > Reward in my mind and I don't have a complete thesis on entrance and exit and what factors changing would change my thesis. Anything could happen and none of us know the future, but I'm not playing in the markets individually while there are still non-market forces involved in the price.
As another word of caution, I'll tell you the stats of retail traders that trade commodities and currencies from when I was in the business a decade ago… Only 8% made money over the life of their accounts. Only 3% made more than 10% over the life of their account. Almost 30% lost all of their initial funds, many inside of a year.
