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'Smart money' betting oil will fall; natural gas short covering slows

Thebearish trend of smart money positioning in crude oil resumed in the week endedSept. 20, which implies that prices may continue falling in coming weeks, whileshort covering in natural gas abated somewhat as the trend turned more bullish.

Datafrom the "Commitments of Traders" report from the CFTC published Sept.23 showed that crude oil traders classified as managed money reduced their netlong position by 41,841 contracts to reach the smallest in six weeks at 128,554contracts in the week ended Sept. 20.

Thebreakdown of trades showed that the addition of new shorts was the biggestfactor behind the decrease, with short positions gaining 38,905 and longsfalling 2,936 contracts. Prices declined $1.46/bbl during the survey week.

"Thelatest CFTC and ICE data show a massive increase in bearish positions byspeculators, as money managers lose faith in progress from this week'sgathering of OPEC members," Matt Smith, director of commodity research atClipperData, said in a note. "The net-long position has not only beendragged lower by the addition of short positions, but by shrinking longpositions also."

Noncommercialaccounts exhibited a similar pattern to the managed money category, as the netlong position shrunk by 34,429 contracts to reach 278,873. There were 29,597new short positions added while longs were cut by 4,832 contracts.

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

Innatural gas, significant levels of short-covering experienced recently bymanaged money accounts abated in the latest data. Short-covering new long positions innatural gas through the week ended Sept. 13 by more than a 3:1 margin, whichsuggested that a potential short-covering capitulation was underway.

Thattrend turned toward one of more outright buying in the week ended Sept. 20,with the net long position increasing 25,716 to reach 113,567 contracts. It wasthe largest net long position that the trader category had held since the weekended April 22, 2014.

Therewere 16,871 new long positions added while shorts were reduced by 8,845contracts. Prices gained 13.8 cents during the survey week.

Thenoncommercial category was more balanced, with the net short position shrinkingby 1,738 contracts to reach 75,397. The breakdown of trades showed that therewere 16,726 new long positions opened while shorts increased by 14,988.

Market prices and includedindustry data are current as of the time of publication and are subject tochange. For more detailed market data, including powerand naturalgas index prices, as well as forwardsand futures,visit our Commodities Pages.