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Oil prices fall amid smart money selling; gas rally fades on short covering

Thecrude oil market posted its second consecutive drop in the week ended April 5as smart money traders continued to shrink their net long position. Natural gasprices fell marginally as data suggest that short covering was prevalent.

Datafrom the U.S. Commodity Futures Trading Commission's "Commitments ofTraders" report published on April 8 showed that the buying momentum ofthe so-called "smart money" traders continued to deteriorate in earlyApril.

Themanaged money net long position was reduced 32,674 contracts to 176,508 in theweek ended April 5, with prices falling $2.43/bbl during the week.

Thebreakdown of trades suggests that shorts were built at a strong pace, with31,344 new shorts added and 1,330 longs unwound during the week.

Noncommercialaccounts reduced their net long position by 15,381 during the week to reach290,130 contracts. The breakdown of trades showed that 7,079 long positionswere added while shorts built 22,460.

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, noncommercial accounts greatly reduced their net short positionbut did so through short covering, which limited any rally in prices.

Thenoncommercial net short was cut by 29,368 to reach 138,325 contracts during theweek ended April 5. The breakdown of trades showed that 24,329 short positionswere cut while 5,039 longs were added. Prices fell 4.2 cents during the surveyweek.

Shortcovering can have a mixed impact on prices and has tended to indicate that thestability of an upward trend is uncertain as long-term rallies are rarely builtupon short-covering.

Managedmoney accounts reduced their net short position by 18,382 contracts to reach72,860. The balance of trades also showed short covering, with 18,335 shortpositions cut and 47 new longs opened.

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.