I use this indicator, the net (long versus short) positions of non-commercial traders, as a measure of future potential supply and demand.
For the Week Ended February 27, 2007:
CFTC: Natural Gas Open Interest Plummets While Net Position Recovers To Neutral. Does this bode poorly for near term gas prices? Maybe, maybe not (I know, how useful). I consider this week’s look to be slightly gas price bearish. Here’s why:
- As I’ve stated in the past I believe the predictive element of CFTC data is somewhat contrarian in nature. In my way of thinking, large net long positions represent potential supply and are therefore actually bearish and visa versa. This week bulls and bears are evenly matched (the net position is near zero).
- As always when I’m writing about the CFTC I’m examining the non-commercial (speculator) data. After rising to levels of what can only be considered speculative excess last Fall, open interest in NYMEX natural gas futures had its largest one week decline in open interest in seven years. Maybe it’s nothing. Maybe they’re just gathering their firepower to go long when things settle down in the broader markets. I’ll keep a close eye on this because a continued reduction in open interest has often led to falling commodity (gas) prices. But again, we’re at step one in that analysis now.
- Combining this sudden lack of betting one way or the other with the players abandoning the table for friendlier games (and that’s all this is to the
hedgiesspeculators) I’m struck with a slightly bearish look for gas.