Dry natural gas prices broke out to the upside last week.

johnN

https://www.google.com/amp/s/seekingalpha.com/amp/article/4367158-natural-gas-prices-surged-over-20-last-week-natural-gas-equities-surged-even


Summary
Dry natural gas prices broke out to the upside last week.
Natural gas equities outperformed, as they have been doing for a majority of 2020.
Bigger picture, natural gas equities are leading dry natural gas prices, which are leading commodity prices, which will lead to inflation.
This idea was discussed in more depth with members of my private investing community, The Contrarian. Get started today »
Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.
-- Sir John Templeton

Introduction
I have been bullish on dry natural gas prices and natural gas equities for a long time. Two recent published examples of this bullish include the recent published article, "Antero Resources Is A Generational Buy: Working Through The Near-Term Debt Maturities", and "EQT Corp Surges As The Bearish Natural Gas Thesis Is Dead", which was published on March 17 in the heart of the declines in the SPDR S&P 500 ETF (SPY) and the Dow Jones Industrial Average ETF (DIA).

Natural gas equities featured in these articles, including Antero Resources (AR), Antero Midstream (AM), and EQT Corp (EQT), have performed admirably year-to-date in 2020, with AR shares rising 37.9% year-to-date through August 7, AM shares rising 9.3% YTD, outperforming all of their pipeline peers, and EQT shares rising 58.4% YTD./





Just an observation -
Maybe huge demands for commodities on the horizon....so many cars on road now new where we live...things slowly returning to normalcy unless another hugh covid19 outbreaks...

hank

@John. Could you explain the difference between wet gas and dry gas? Which is better?

Natural gas has been DOA for a number of years. Trading just over $2 today. I’ve gleaned lately that one reason gas and oil often run in opposite directions is that gas is a byproduct of fracking. So rising oil prices imply more fracking and thus result in oversupply of gas. Nice rally in crude lately after going negative a few months back. Brent‘s over $45 / NYMEX above $42.

A Covid vaccine should be good for oil as they are a long way from making large passenger transports fly on battery or solar (although planes have become a lot more fuel efficient). I’ve always committed 10-12% to the natural resources & commodity-type funds (currently 11%). This is the first time in a long while that I’ve had something to smile about with that corner of the portfolio.

BTW - gold’s bouncing $25 today. Still has farther to fall IMHO.

Derf

@hank said, " A Covid vaccine should be good for oil as thetpy are a long way from passenger transport planes running on battery or solar.
Interesting thought hank. I was thinking of picking up a energy fund a few days back, but couldn't pull the trigger. Pay back may take awhile as I don't see the number of people flying coming back in full force once vaccine is proven.

Stay safe, Derf

hank

@Derf. I’ve never owned an energy fund. I’d be afraid of such concentration. If I had to go into something new today I’d consider a broader based commodity type fund like PRAFX (ER .81) which will get you exposure to energy, real estate & a lot of other things. Price’s PRNEX is heavier on energy - but highly cyclical and riskier overall IMHO than the former. (I own both.)

I’ve also been impressed with Invesco’s operation after being unceremoniously dumped into them from now defunct Oppenheimer. In particular, I’ve found their commodity linked BRCAX less volatile than most in that arena. It seems to get jerked around a bit by gold - if one wants that type of exposure. It won’t make you a fortune, but a more stable ride and closer to being a real commodities fund than others I’ve owned. ER 1.40% on Class A. (Might not be available NF).
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*The above cited funds are not recommendations. Nor do they represent the best possible alternative in their category. Not being a momentum investor, I’d probably be looking to lighten up on my commodities exposure (by rebalancing) in coming months.

Derf

@hank: BRCAX as a ton in cash ! Prnex looks to have some upside.

Stay Safe Derf

hank

Re: “ BRCAX as a ton in cash ! Prnex looks to have some upside.”

@Derf - That’s a byproduct of their methodology. I can’t speak for all commodity funds, but a good many hold high levels of cash and bonds. Sometimes you’ll even see a figure like 150% in bonds.
Relates to their buying futures contracts instead of the actual commodity. You don’t suppose Invesco wants to start stockpiling corn or hogs? That also explains how oil (on paper anyway) could fall below 0 for a day. I’m guessing they’re required to keep an amount of cash on hand to cover those assets (or a large portion of them) which they’re holding only in “paper” form.

Here’s how it works from Invesco’s site:

“The fund seeks to achieve its investment objective by investing in derivatives and other commodity-linked instruments that provide exposure to the following four sectors of the commodities markets: agriculture, energy, industrial metals and precious metals.”

Notice the words: “derivatives”, “commodity-linked instruments“

I mentioned this type of fund because if you can stomach it (not everybody can) it provides much truer diversification away from equities than you get in a natural resource fund. A fund like PRNEX, for example, is rocked quite a bit by the equity markets because it’s investing in companies that buy and sell natural resources A fund like BRCAX, on the other hand, is trying to track the actual price action in the commodity itself - so it’s a purer play on commodities. It’s like the difference between owning a lumber company and owning the timber itself.

Note: Much of the “upside” Derf notes in PRNEX is a byproduct of generally favorable equity markets. In a slumping stock market, that upside may turn to “downside” even though commodities in general hold their own or appreciate.

Mark

Dry gas, natural gas that consists of little more than methane, producing little condensable heavier hydrocarbon compounds such as propane and butane when brought to the surface. In the United States, dry gases are defined as those that contain less than 0.1 gallon of condensables per 1,000 cubic feet of produced gas.

Dry natural gas is at least 85% methane, but often more. Wet natural gas contains some methane, but also contains liquids such as ethane, propane or butane. ... The natural gas used in homes and business for heating, cooling, cooking and electricity generation is dry gas. It can also be compressed and used as a fuel.

Wet vs. Dry Natural Gas. What's the Difference

Derf

@hank: Thanks for info on BRCAX methodology . Many years back I put up some cash so a friend could take a contract on hog bellies. I was informed that (we) had enough gain & should he purchase another contract. Well being a little green , I okayed it. Then for the best part of the deal.... I was on a fishing trip when my late wife took a call from him looking for more $$$ to keep the contacts. I guess I learned a good lesson on that deal.
Lost the whole shebang !! , Derf

P.S. Can't win them all !

hank

@Derf - Great story. We just took delivery of a new larger freezer. But I don’t think it would hold enough hog bellies to make trading profitable.

Thanks @Mark for the explanation. Now you got me wondering is LP (liquified petroleum gas) the same as wet gas? I’ll bet it is ... We got a 500 gallon LP tank near the house (for heat and hot water). Interestingly, those are (or used to be) referred to as “PIGS” - which kinda ties this whole thread together.