Cash the Crash in Gas Prices

Hello friends. This is Vijay Bhambwani. I hope you're doing well in the markets and my videos of playing a very cautious hand and my updates on Equitymaster's Telegram channel, which goes by the handle Equitymaster official, me telling you to trade very, very carefully on light volumes has stood you in good stead, particularly in the last two or three trading sessions in the equity and commodity markets.

Friends, this video is for a serious commodity trader, for somebody who is very keen on trading energy and if you are my Weekly Cash Alert subscriber, this video is like an update for natural gas.

Dear Reader: If You Invest in Midcap Stocks, this is for You

Now, In yesterday's video, I told you why I think OPEC is kicking the can down the road and how any kind of an agreement is merely postponing the problem where oil prices are concerned.

Can a similar fate await the price of natural gas? If you're a Weekly Cash Alert subscriber, you would know that crude oil and natural gas form the crux, the backbone of our profitability because I love these two counters and natural gas is something that many people avoid due to its sheer volatility and which is why we walking where others fear to tread because that makes the trade profitable as long as you know what you're doing.

So do I know what I am doing? Have I done my homework and what do I think about natural gas? So here goes.

You see, at the end of December 2020, we experienced what is known as a polar vortex. There is a sudden drop in temperatures of the poles and in this case, the Arctic Circle. A lot of ice broke away thanks to global warming and drifted in the seas towards North America and Northern Europe.

That sent shivers down the climate out there in the vicinity and it caused huge supply disruptions in natural gas, which, as a Weekly Cash Alert subscriber, having read the Weekly Cash Calendar of the Weekly Cash Blueprint, the 16 or 18 page PDF trading guide on commodities in which I've split the calendar month-wise as to what commodity is to be traded in which month and why. The 360 degree world cannot be complete unless I shared with you the why.

So I've told you natural gas is particularly bullish in the winter months and it was a particularly hard time in December, Jan, and Feb, December 2020, Jan and Feb of 2021, for natural gas suppliers because pipelines froze, they fractured, they leaked, and contracts were violated, lawsuits were filed, and we are a whole lot of trouble.

This is why the consumers are not taking any chances. They are buying a whole lot of natural gas even in the summer months. Now that explains why natural gas prices are going up in the summer, even though my Weekly Cash Blueprint or the Weekly Cash Calendar tells you that summer months are not something that we trade natural gas on the long side. Now this is people playing safe.

But is that the only reason? I shared with you in yesterday's video, the reason why I think the Wafra Khafji oil wells in Saudi Kuwaiti border, how the ramping up of oil output by Iran, by Libya, by Iraq, and asking for a higher base hike by Abu Dhabi, was likely to pressurise oil prices.

Can similar pressure points exist in natural gas? The answer is yes.

Look at Qatar. Qatar, in my video where I have spoken about how OPEC is dying, I have been saying this since 2018, that OPEC is not something that I expect to survive beyond a decade from now.

So Qatar has walked out of OPEC and when it comes to supply of natural gas, it's the big boy, and it's a swing producer. Qatar can actually dictate terms when it comes to pricing of natural gas and it has made it very well known that it is not going to cut down output. As a matter of fact, it is going to gain market share by selling natural gas, even if the prices were to collapse. Official statement.

Naysayers could actually say that I'm succumbing to headlines or I'm succumbing to publicity or public relations but if you were to simply Google search the amount of debt that Qatar has ramped up and mopped up from the bond market, you will know that the only way you can make money if you're a natural gas exporter is to sell that natural gas. Not to curtail production and jack up prices and then not sell.

Now this is something that I don't really understand in the market when people come out and tell me Vijay, you're wrong about crude oil and natural gas prices. These guys will curtail output and jack up prices.

And I ask them, jack up prices and then do what? Not sell? Jack up prices and then sell? In which case the price comes down. As a business owner, I can tell you that I can make money only when I sell and receive my payments.

So I think Qatar is borrowing money just as the Saudis are raising money in the bond market, just as every other oil exporting country in North Africa is hungrily grabbing all the debt that they can pick up. They are basically going to repay that debt by selling natural gas. Now here comes the kicker.

The Russians are building a twin pipeline which is 1,230 kilometres long, an undersea pipeline, which is called the Nord Stream 2 pipeline.

Like I said, 1,230 kilometres from Russia straight to Germany. This pipeline will supply low cost natural gas across Europe. Two issues that you need to understand. For somebody who says okay, 1,230 kilometres of a pipeline can come up tomorrow. Well, I've got news for you. Less than 100 kilometres of the pipeline remains to be built and the Russian engineers assure us that it can be done in less than 40 days and this update is a few days old.

I believe in boots on the ground and eyes in the sky. I believe in having friends who can vouch for information that they share with me and this is as credible as it gets.

What is the capacity of this twin pipeline, Nord Stream 2? 55 billion cubic metres per annum each, which means the combined output of these two pipelines, the Nord Stream 2, is 110 billion cubic metres per annum.

Now, the largest exporter to Europe, one of the largest exporters to Europe is the USA, United States of America. What is America gonna do about it? Is it gonna just sit there or is it gonna pass sanctions against Nord Stream 2? Hey, they tried but Joe Biden very clearly said that he does not want to ruffle the Germans' feathers by imposing sanctions on Nord Stream 2.

So even if it means the US losing some business in Europe, particularly Germany, Joe Biden's administration is not imposing sanctions on Nord Stream 2.

If you were to basically monitor the progress of Nord Stream 2, trial runs are beginning in end of August, if not first week of September. So before the winter sets in on Europe, chances are that low cost, high quality Russian natural gas will warm an average European house.

Do I expect major spikes like what happened in the polar vortex last year? I don't think so.

But then do remember that July to September, sometimes even up to October, is the hurricane season in the US coast and many disruptions are known to have taken place at this time of the year. So some supply disruptions could occur.

The next one or two months could see gas prices being fairly cushioned and fairly supported but I can assure you that the possibility of crude prices falling off a cliff just like you saw oil prices fall of a clip on Monday evening and by the way, for those of you who were sceptical about me, saying oil will not go US$100 a barrel, not just now, but since months, this was the biggest single day fall in crude oil prices on Monday, after the prices went into negative territory in April 2020.

So look at the contrast. From US$100 a barrel, you are now coming down to a single, largest decline in one day after the time when oil prices actually dived into negative territory. If you look at the mainstream media, the big boys, Bloomberg, Reuters, etc, now all saying that US$100 may not come.

Welcome to financial markets. This is the way I handle the homework that I do. Of course, this is just the tip of the iceberg. There are a whole lot of moving parts that we monitor before I send out an alert to Weekly Cash Alert subscribers but here is the broad based crux of what I have to tell you and this is why I think natural gas is a good trade, and you should wait for my alerts.

On this cheerful note, I'll bid goodbye to you, not before reminding you to click like on this video, if you agreed with what you saw. Subscribe to my YouTube channel if you haven't already done so. Click on the bell icon to receive instant alerts about fresh videos being put up out here.

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I wish you have a very, very profitable day my friends. Do take good care of your trades, your investments, your health, your family, and friends. Thank you for your patience and watching my video. Till we meet again in my next, this is Vijay Bhambwani signing off for now. Take care.