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Smart money in natural gas follow prices as oil longs again reach new records

So-called smart money traders in natural gas have played both sides of a roller coaster trend in natural gas prices in recent weeks, while traders in crude oil pushed their net long position to a record high for a second consecutive week.

The latest "Commitments of Traders" report published by the CFTC on Jan. 27 revealed that noncommercial traders in natural gas added 14,836 contracts to their net short position to reach 22,797 lots in the week ended Jan. 24. Prices fell 13.3 cents during the survey week.

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The increase in prices unwound a gain of 13.4 cents in the prior week, while the rise in the net short position followed an unwinding of 25,766 contracts previously. The up and down nature of holdings has followed the trend in prices over the last three weeks and has been prompted by mixed fundamentals.

"While prices reflect the moderate temperatures, prices may find support with U.S. production well below last year and exports increasing at a steady pace, drastically curtailing net supply," analyst Kyle Cooper with IAF Advisors said in a note.

The change in the noncommercial net short was made through the addition of 9,940 new short positions while longs were cut by 4,896 contracts.

Traders classified as managed money exhibited a similar pattern, with their net long position cut by 23,851 and was pegged at 138,203 contracts. There were 15,298 short positions added while longs were cut by 8,553 contracts.

Noncommercial traders include those that are large enough to meet minimum position thresholds but are not involved in hedging, while the managed money category includes those who engage in futures trades on behalf of investment funds or clients. Both are widely followed by traders and are considered to be the "smart money," as their positioning can track or sometimes lead changes in price trends.

In crude oil, the bullish opinion built further, as noncommercial traders added 17,845 contracts to their net long position to reach 482,523 in the week ended Jan. 24. It was the second consecutive record high and took place in a survey week when prices gained 70 cents.

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"Market participants are slowly becoming cautiously optimistic that OPEC and non-OPEC producers that are part of the production accord are actually complying at a high level to the agreement," Energy Management Institute principal Dominick Chirichella said in a note. "That said, the vast majority of the information regarding the deal has come from participants to the deal and not from independent third party sources."

The change in noncommercial holdings was made through the opening of 10,864 new long positions and the closure of 6,981 shorts.

Managed money accounts added 23,406 to their net long position to reach a record 366,821 contracts in the week ended Jan. 24. The change was made through the addition of 17,492 new longs while shorts fell 5,914 contracts.

Market prices and included industry data are current as of the time of publication and are subject to change. For more detailed market data, including SNL power and natural gas index prices, as well as forwards and futures, visit SNL Energy's Commodities Pages.