Over the two weeks ended last Tuesday the net length of Nymex natural gas futures held by money managers dropped by 16%, from a record 207,413 contracts to 174,921. At the same time spot gas futures rallied around 1.8%. However, since last Tuesday gas has rallied another 5.8%!
At 207,413 contracts or 2.074×1015 Btus, money managers had sold enough gas to supply U.S. industrial demand through the first three months of 2011.
Therefore, we think it can go without saying that last week’s “strength” in Nymex gas was a function of oversold conditions on Wall Street. To this effect, given last week’s spike a considerable amount of those 174,921 remaining shorts got exorcised from the market.
Be that as it may, 174,921 contracts (i.e., 1.75 Tcf) would be enough gas to supply 80% of this summer’s pending refills.
Bottom line, as we start the new week analysts at The Schork Report are maintaining their short-term (daily) bullish bias. We think a move towards the 50/62% retracement range from 4.305 to 4.440 is not an unreasonable expectation.
As far as the Nymex oil contract goes, money managers slashed their length last Tuesday by 8%, from a record 274,235 contracts to only 251,380. In other words, instead of 5.98 barrels in the paper market for every 1 barrel of working storage capacity at the Nymex hub in Cushing, speculators now own only 5.48 barrels for every 1 barrel of tankage (see graph in today’s report).
We want to get bearish WTI, but in light of the headlines out of Libya, we will keep our powder dry.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.