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Short covering boosts natural gas funds to highest net long in 2.5 years

Shortcovering by "smart money" traders in natural gas resumed in the weekended Sept. 27 and helped to push the managed money net long to the highestlevel in 2.5 years, according to fresh data from the CFTC. Short covering wasevident by oil traders too, although the trend was not nearly as strong.

Datafrom the "Commitments of Traders" report from the CFTC published onSept. 30 showed that natural gas traders classified as managed money boostedtheir net long position by 10,591 contracts in the week ended Sept. 27 to reach124,158 contracts. It was the highest net long position held by the tradergroup in more than 2.5 years since the week ended March 18, 2014.

Thebreakdown of trades showed a balance tipped somewhat toward short covering,with 4,989 new long positions opened and 5,602 shorts that were closed.

"Prices[slipped] to end the week as above average temperatures now become bearish andMarcellus cash prices were below 25 cents for the weekend," Kyle Cooper,analyst with IAF Advisors, said. "The outlook has turned somewhat morebearish near-term with recent physical data decidedly less bullish."

Noncommercialtraders remained net short, but reduced the position by 27,752 to reach 47,645contracts. The trader group was a bit less bullish than the managed moneycategory, as short covering dominated the breakdown. New long positions grew by6,392 contracts, while there were 21,360 shorts that were covered.

Noncommercialtraders include those large enough to meet minimum position thresholds but arenot involved in hedging, while the managed money category includes those whoengage in futures trades on behalf of investment funds or clients. Both arewidely followed by traders and are considered to be "smart money," astheir positioning can track or sometimes lead changes in price trends.

Incrude oil, managed money accounts boosted their net long position by 26,385 toreach 154,939 contracts in the week ended Sept. 27. New long positions helpedto boost the overall balance, with 17,432 new longs opened and 8,953 shortsclosed. Prices increased $1.23/bbl during the survey week.

Tradersbecame increasingly bullish based on the expected news from OPEC later in thetrading week, which eventually revealed an agreement to curb output to levels below those in placecurrently.

"Anyreduction in production by OPEC and non-OPEC co-conspirators means that wecould achieve global oil market balance early next year, drawing down the oilmarket glut," Phil Flynn, senior market analyst at Price Futures Group,said. "Oil should break out of its range to the upside as we get closer tothe end of the year."

Additionalpositive sentiment may have been generated by the development of HurricaneMatthew, which is expected to begin striking the East Coast later this week.

"Thestorm will effectively shut down the entrance to the Gulf of Mexico later thisweek reducing Gulf Coast imports," Flynn said.

Noncommercialtraders also built upon their net long through the addition of 12,773 contractsduring the week ended Sept. 27. The breakdown of trades was weighted toward thecreation of new longs, with 10,666 new long positions opened compared to 2,107shorts that were covered.

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.