While the natural gas market consolidated yesterday after Monday’s moon-shot, crude oil bears assumed the spotlight on Tuesday. The spot market for February WTI dropped 4.6% (peak-to-trough) through the first two sessions of 2011. However, bearish momentum yesterday stalled just below the midpoint, 88.83, of a congestive range from the first half of December.
Similar to the story behind Monday’s spike in the natural gas market, the seeds of yesterday’s plunge in oil prices can be traced back to the latest CFTC Commitment of Traders report. For instance, as of the end of 2010 money managers were holding their most bullish position ever, net 202,221 contracts.
In other words, the guys and dolls on Wall Street owned 5.5 “paper” barrels for every 1 physical barrel sitting in tank at the Nymex hub in Cushing, Okla.
Thus, as we entered this year, money managers were holding one of their most bearish positions ever in the natural gas market and their most bullish position in crude oil. Consequently, the ratio between Nymex crude oil contracts and natural gas contracts stood near an all-time high last week of around 2.2, i.e. one contract for $92 crude oil could have purchased more than two contracts of $4.10 natural gas.