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Smart money in natural gas confirms price weakness, indicates more to come

Freshdata from the U.S. Commodity Futures Trading Commission's "Commitments ofTraders" report published on May 6 indicate that net selling in naturalgas may continue, while traders in crude oil appeared to add confirmation tothe recent downward reversal.

Datafrom the CFTC showed that traders classified as noncommercials made the largestaddition to their net short position in nearly a year by increasing 25,038contracts to reach 141,490 in the week ended May 3. That was the largest increasesince a gain of 35,191 contracts in the week ended June 2, 2015.

Thereduction was mostly the result of the addition of new short positions, with23,491 new shorts opened while 1,097 longs were closed. Prices advanced 5.4cents during the survey week.

Tradersclassified as managed money added 24,330 contracts to their net short position,which reached 79,409 contracts. The breakdown of trades was similar tononcommercial traders, with 21,238 new shorts added and 3,092 longs eliminated.

"Thelatest CFTC Commitments of Traders report issued on Friday with the datasnapshot as of last Tuesday (May 3) showed the spec community were net sellersof 21,193 contracts and increasing their net short exposure," EnergyManagement Institute principal Dominick Chirichella, said in a note. "Basedon the way the market has traded since last Tuesday I would expect net sellingto continue."

Chirichellasaid that the technical viewpoint favors more weakness in the short-term. KyleCooper, an analyst with IAF Advisors, anticipates a more sideways direction inthe near term.

"Withonly a 15.3 cent range last week, it seems unlikely to record another insideweek, but balanced fundamentals do not yet suggest a strong directional bias,"Cooper said. "Prices could easily chop back and forth near current levels."

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.

Thedata also provided a negative indication for the crude oil market asnoncommercial traders cut 15,721 from their net long position to reach 318,544contracts. The breakdown of trades showed that 14,259 long positions wereeliminated while 1,462 shorts were added. Prices fell 39 cents during thesurvey week.

"Thelatest CFTC data illustrate that net long positions have once again shuffledaway from one-year highs, as long positions were closed out," Matt Smith,director of commodity research at ClipperData, said in a note. "Thissecond consecutive drop in net long positions highlights that hedge funds aretaking profits after the recent ramp up in prices."

Smithlooks at the futures and options data combined. Data using only futures showedthat the latest week's numbers were the first drop.

Inthe managed money category, traders reduced their net long position by 10,710to reach 212,757 contracts with 10,968 longs cut while 258 shorts wereeliminated.

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.