Natural gas is second only to the newly established electricitymarket in terms of volatility, and Tuesday it did little to dispelthat notion as the market dipped momentarily, only to spikedramatically higher in the last 90 minutes of trading, leaving eventhe most weathered of bulls surprised by the advance. Octobersettled at $2.132, a 17.8-cent gain for the day and nearly ahalf-dollar above the $1.63 low established less than two weeksago. Estimated volume confirmed the active trading with over120,000 contracts changing hands.
Sources were quick to point to the large net short position heldby the fund groups in the latest Commodity Futures TradingCommission Commitment of Traders report released last Friday as acause of the advance. That report, showing non-commercial traderswere net short nearly 30,000 positions as of September 8 (pleasesee table), made the market susceptible to the short covering rallyyesterday, sources agreed.
A Houston-based futures trader agreed, adding that technicalindicators have also turned bullish. “[The October contract] hasmoved above all the moving averages in the last week or so-the 18,20, and more recently the 40 and 50-day. That has had an undeniableeffect on this market. The funds are in a no-think state right now.Those averages serve as part of their trading bible and they arebuying their way out of those short positions en masse.”
As if the market didn’t already have enough to digest, twostorms appeared on up on traders radar yesterday (see marketstory). A Gulf marketer felt reports of the storms was a supportivefactor in the market, but said neither one would instigate a pricerally on their own. However, coming on the heels of Earl andFrances, the market is in a very precarious state. “It will be verydifficult for people to continue to make up imbalances if moreproduction gets shut in.”
Commitments of Traders
As of September 8, 1998
1A negative number in the Net Long column means the group is net short.
2Average percentage of short and long positions (i.e. net percentage).
Changes are from September 1, 1998
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