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The missing link

Since reaching all-time high of 13.31, natural gas has joined with crude oil beginning their equally breath-taking downward spiral as when they marched up at beginning the year. In my early post (7/4), I made a case that natural gas might have much room left to continue its upward momentum comparing to crude oil. The arguments were partly based on the futures market data on Henry Hub (HH) natural gas futures swap that the speculators have incremental increased their bullish bets (net long positions) since starting of 08. There have been no signs that the smart money reduce their bets on long side based on this Friday's CFTC release, granted the net long positions declined somewhat but still on significant on the bullish camp. This really puzzled me considering the size and momentum of long positions on the HH natural gas swap futures market. If the momentum for natural gas has shifted, we certainly would expect the speculators, if not lead the pack, at least join the crowd. This seems don't make a whole lot sense at all.

When I studied the plain vanilla crude oil futures and options data from CFTC, I was even more puzzled with what I found. The results were almost perfect opposite to the HH swap futures data (see the chart below, the red line is HH natural gas spot price and the shaded area represents the net futures and option positions).


As the chart indicates that speculators in the futures and options market have increased their net short positions since the beginning of last year, a startling contrast to HH natural gas swap futures market. The wager on the natural gas decline has accelerated entering 2008 and current net short positions almost were almost triples from the beginning of 2008.

This really presents a interesting and confusing situation. On the surface, it seems that the speculators of HH natural gas swap futures market express total opposite view (very bullish) to the strong bearish positions of the speculators at plain vanilla natural gas futures and options market. How can this be? Is something missing here? Is possible the so-call non-commercial "speculators" in the HH swap futures market not true speculators but commercial users or the so-called index speculators (they typically only hold the long positions and roll the contracts) ? Hope someone can provide more insights.
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