I stumbled upon a pretty interesting trading thesis today about natural gas.
Most oil wells contain some percentage natural gas. As the amount of shale wells has increased over the years, as much as 40% of of the gas produced in the US today is a byproduct from shale wells.
This has lead to an increased gas production to the point where most dry gas producers are losing money.
Thanks to the multi year oversupply of oil combined with the recent demand glut due to COVID-19 leading to crashing oil prices, many unprofitable shale wells are being taken offline as mass bankruptcies in the oil sector has begun and also there is not enough room to store all the oversupply.
This will lead to decreased gas production and since the gas demand hasn’t dropped due to COVID-10, it -should- lead to higher gas prices – $UNG.
I don’t know anything about the energy sector but the thesis sounds reasonable and logical to me and could lead to some epic bounces in some beaten down gas stocks. It has already started as many have doubled or more the past month.
My main play is probably going to be the 3x ETF $UGAZ. This one went up over $300% in late 2018 and I will take a starter position today with a wide stop with the plan of adding as the thesis plays out over the next few weeks/months.
In 2018, $UGAZ broke its downtrend/sideways range and the 10/20-day moving averages started acting as a support. Then it flagged for a month until it broke out and went parabolic
Some extremely beaten down gas related names are $RRC $AR $SWN. We may see some $300-500%+ moves here.
A few higher quality names $CNX $EQT $COG.
Obviously will have to wait for setups first and not blindly chase.
My main focus is still going to be waiting for buyable bases in my favorite growth stocks but this is a thesis I will track closely as many times cyclical commodity/turnaround stocks make bigger moves than the growth stocks because they are priced for bankruptcy.