Skip to main content

Natural Gas Momentum Marches on!


Crude (West Texas Intermediate) spot price has gone up about 51% from $96 to $145 since beginning the year and has grabbed all the attentions and headlines from media, politicians and Main Street alike. Natural gas, on the contrary, quietly has sneaked up over 68% over the same period and got much less fanfare than its “big brother” from general public. However, at the NYMEX, non-commercial market participants (“speculators”) have keen interests and got all their attentions. The speculator’s long positions for Henry Hub natural gas swap futures has skyrocketed from less 560,000 to over 1,400,000 contracts, while the short positions maintain at about 200,000 during the 1st half year. The attached chart (natural gas is represented by red line and the net long position is presented in shade column) shows clear close association between the incremental accumulations of net long positions for the speculators and spot prices for Henry Hub natural gas. It seems that upward moment for natural gas is much intact and no indications to abate at all.

In the last decade, on average crude oil was traded about 6-8 times over natural gas. If we do assume the regression to the mean does hold here. Current 11 times crude to natural gas ratio could mean that 1) natural gas keeps moving up if crude remain relatively stable level, 2) natural gas accelerates faster than crude oil if oil continues the current upward trajectory, 3) certainly natural gas may also decline from bearish statistical/economic data or simply capital rotation out of natural gas and lock-up the gain and heading for beaches at Hampton for the summer, and or 4) the commodity bubbles finally burst and both crude and natural gas along with metals and agricultural commodities all spiral downward. And certainly some unexpected extraneous events could happen and change everything.

One of caveat, though, even the seemingly unstoppable crude upward movement, the crude speculators have been continuing closing out their bullish bet (NYMEX speculators crude long positions declined from about 260k to 210k) in the last month, while their short positions remain at about 190k level. This may be not a good sign for the oil bulls out there.

What will happen next, that is always the most important question.
Labels:

Popular posts from this blog

Updated: Will AAPL be $125-150 by July?

In late March, we saw significant bullish bets on AAPL in option markets. In my post " Will AAPL be $125-150 by July ?", we noticed a huge call spread position (10,000 contract) hit the tape on March 25. AAPL was closed at 106 and change, and has rallied more than 35%, which certainly make the owner of this long bull spread position smile proudly. So how much profit we are looking at right now if the investor exits the position today? At this moment, AAPL July 125 call is traded at about $19.50 and July 150 call around $4.20. Ignoring the transaction cost, each contract is worth about $1,530, so the total position is $15,300,000. Remembering that the initial investment was only about $3,950,000, and so net profit would be $11,350,000. The trade almost triples the initial investment just over two months! Not a small feast considering the limited risk profile.
Read more

Speculators Held Highest Net Long S&P Futures

Today's dramatic 1000 point reversal of Dow 30 may be just the capitulation point that market has been looking for in this free fall market. Many other sentiment indicators, such as AAII bull and bear readings, VIX and 52 week high/low also point to the extremes. Underneath this gloomy and Armageddon scenario, one of most significant and interesting piece of data is in the futures market, specifically speculator's reading in this scary market. According to today's data release from CFTC, it looks that speculators have positioned for market (S&P500) turnaround. As this past Tuesday, speculators have built more than 102,000 long S&P500 positions, a highest in last five years. More importantly, the speculators also have reduced the bearish bet, short positions to just about 43,000, a lowest level in two years. Without questions, in the last few weeks, the equity market was the darkest period for the long side, but the end may be in sight at least in the short term. Th...
Read more

What history tell us about “Sell in May and Go Away”?

US stock market has experienced one of the best first four-month performance over the last four decades, produced 17.5% price return comparing to 19.1% in 1987. It is the third best price return for S&P 500 index since 1950; the top four-month performance belongs to 27.3% in 1975 as the stock market recovered from a severe bear market in 1973-1974 when the index nosedived more than 42% in two years. With calendar flipped into May and onto summer season of sun, beaches, most likely we would hear a lot of about old Wall Street saying “Say in May and go away” in the media. Moreover, primarily because of the unprecedented nature of speed and magnitude of the current market rally against the backdrop of weakening macroeconomic and corporate earnings backdrops during the period.  Sell in May and Go Way has delivered 6 times more return Historically, the six months between Nov-April frequently experienced extraordinary stock market performance than the six months between May to Oct...
Read more