Ron2008

Natural Gas Up on Huge EIA Draw

LIke Dogpound said, the NG draw was the 2nd LOWEST in the last 10 years for that week. So how is that huge or large? The media misrepresented that one by a huge amount.

Come on SA, you can be better than that.

Natural Gas Gains: Not Convinced of Sustainability

The US has been exporting LNG for years to Japan. Piping it to Mexico and Canada. But it is a very small amount.

tonto.eia.doe.gov/dnav...

Natural Gas Trading: Right Now, It's the Wild, Wild West

Sell now because prices will drop because they are taking their profit.

But be careful.

On Sep 19 11:52 AM Genesis wrote:

> So... if the shorts are trying to take advantage of the UNG rollover,
> and the short squeezers are taking advantage of the massive short
> positions, how do we take advantage of the traders who are taking
> advantage of the ones who are taking advantage of the UNG rollover?
> ;)

Natural Gas Trading: Right Now, It's the Wild, Wild West

Since summer NG contracts are always lower than winter contracts, when UNG rolls those contracts it will lose money. It is not a good long term investment.


On Sep 19 04:30 AM aarc wrote:

> So, when is the time to buy UNG?
>
> When it becomes an over-performer and the undisputed leader of the
> pack perhaps with backwardation to go along in a year, two or three
> years from now?
>
> Seems like trend trading instead of investing.
>
> I invest in natural gas.
>
> So I will buy more UNG when the going gets tough and UNG gets hammered
> some more to the ground.
>
> Then I will sell, sell, and sell UNG when it becomes the American
> Idol or the over-achiever ETF and the undisputed King of the Hill.
>
>
> That is what I call basic investing principle.

Natural Gas Trading: Right Now, It's the Wild, Wild West

Isn't there some way to get this guy banned to prevent him from changing his name and posting that link everywhere?


On Sep 19 10:28 AM your-trade-plan wrote:

> market may just keep going higher because too much doom and gloom
> sentiment
>
> good articles 4 slow news day: tinyurl.com/n854tt

Natural Gas Trading: Right Now, It's the Wild, Wild West

That's not quite what I meant. 84% of the open interest (positions held overnight on the day the DCOT report is calculated) are held by someone other than producers/users. We don't know what percent of trades are spec-spec trades.

There is a hard spec position limit of 1,000 per person that has to be met before the last 3 trading days. So for the Oct contract, which the last trading day is 9/28, specs have to have 1,000 or less Oct contracts by the close of trading on 9/23.

Dian was correct in her statement too. UNG has to be down to 1,000 positions by 9/23 and out by the close of trading on 9/28 because they don't want to take delivery. They can't take the risk of waiting for the last day, so they roll 2 weeks before expiration.

One time (Oct 08 contract) oil jumped up 16.37 on the last trading day. Probably because of someone waiting too long to get out. Did supply/demand say that the price should be 120.92? No. Not when the price was 97.88 two trading days prior. Open interest was 23,130 the day before expiration and 7,780 at expiration. The highest OI at expiration in the last 3 years.

With NG storage being about full, it is a big risk now to be holding positions going into the last trading day.

When OI goes from 186,000 to less than 2,000 that means that only 1% of the contracts are held into expiration. That is far too low a percentage of the futures contract to reflect true supply/demand prices in the real world.

So about 184,000 longs and about 184,000 shorts trade with each other to get out before expiration. Who moves first kind of determines which way the price moves. It's a game of chicken.

There have been huge differences between wheat futures at expiration and cash prices. That was the start of the uproar about futures not matching cash prices at expiration.

A wide disparity between futures and the cash market makes futures worthless for commercials trying to hedge their commodity.


On Sep 19 03:51 AM Aricool wrote:

> Dian,
>
> You say "UNG has also become a *large and predictable player* that
> has to roll because ***it has no capability of taking the contract
> to expiry***. " However, Ron2008 says 84% of NG futures contracts
> are trades between speculators and are not delivered. Seems to me
> one of you have to be wrong. The way you describe it matches how
> I understood it, but if so the front contract's end price would always
> have to reflect true supply/demand b/c the speculators would of had
> to sell ahead of time.
>
> Maybe you both can duke it out so I can see who wins! I'm confused!!!
> The true answer would be very informative to predict future NG price
> behavior.
>
> Thanks,
> Ari-

Natural Gas Trading: Right Now, It's the Wild, Wild West

Speculators have been massively short NG futures all summer. The Oct NG contract had the highest open interest of any contract this year. Peaked at over 186,000. Probably a lot of specs using Oct for their short contracts.

So I suspect that the current rise in front month prices is due to the specs unloading their short Oct contracts before expiration. They did a lot of it during the ETF roll so that they would have someone selling large quantities of contracts. But they had far more shorts than the ETFs had longs, thus the price rise. On Friday, after the UNG roll was over, the Oct NG was up 0.32 but Nov was only up 0.20. More narrowing of the contango.

Open interest (OI) in all NG contracts dropped by 24,888 on Tuesday through Thursday. Shorts (specs) getting out and longs (UNG selling more Octs than the number of Novs they were buying because of the price difference) getting out. Thus the drop in OI.

As far as manipulation, the Producer/Users have less than 16% of the NG futures contracts. That is the lowest of all contracts reported by the CFTC in their DCOT report. Worse than oil. That makes it very easy for futures to not have to reflect current cash NG prices because the majority of the trading is specs with specs. A very low percentage of contracts delivered.

Oct NG OI will go from 186,000 contracts to less than 2,000 contracts where delivery is made/taken. Aug had less than 500 deliveries.

Manipulation possible? You betcha.

On Sep 18 03:14 PM Aricool wrote:

> Can anyone answer this question in re Nat gas E &amp; P stocks:<br/>
>
> that is, with market manipulation jacking up NG contract prices over
> the whole '09 curve, the E &amp; P companies (who know the real supply/demand/timing
> equation) will surely hedge 100% of all '09 possible production.
> The rig count went up since July so they may even be bringing more
> supply online and selling into such additional hedged contracts.
> Keeping in mind that they all (largest to smallest) need more cash
> flow to stay above water (or even survive for the small ones) it
> seems like a sure bet that the E &amp; Ps will max out what ever
> storage, spot demand, or hedged futures demand will profitably permit.
> With E &amp; P cost of production well under $3 for most and NG futures
> for '09 now between $4.5-5.3 they are massive profitable. They know
> that NG prices into Nov. can easily go to 2 or below (have not even
> mentioned the LNG show stopper factor).
>
> So, with all the above backdrop, the question I have is related to
> price -vs- storage dynamic; that is, can the NG market be manipulated
> like that of oil and keep NG prices very high (e.g., above 3.5) until
> the storage is almost or completely full, or is it really driven
> by suppliers and producers setting prices based on supply/demand.
> The way the Sep. contract immediately fell from 4 to 2.5 argues for
> a supply/demand driven market, and the recent move from 2.5 to 3.9
> argues for a manipulation driven market. Just before the month's
> contract ends does NG front month price always have to reflect true
> supply/demand dynamics b/c the speculators have roll/sell out there
> position to avoid taking delivery. What am I missing here?
>
> thanks!
> Ari

Natural Gas Trading: Right Now, It's the Wild, Wild West

Ricard, you also need to look at what happened this week. The spread for Oct/Nov NG narrowed during the roll. It went from 1.051 on the 11th to 0.997 on the 17th. Thus the contango narrowed. Opposite of what you and the author said would happen.

On Sep 18 07:48 AM Ricard wrote:

> I'd reread the author's statement about contango:
>
> "Trading wise, this not only means that the Oct/Nov contango will
> widen during the roll this week, but also that during October there
> could be another upside volatility to natural gas outright prices
> as the UNG could come back to buy outright November contracts. "
>
>
> You're right...it's bearish for the current month, but bullish for
> the next month as they begin huge purchases, thus widening contango
> - I understand that this is one of the main reasons why UNG is a
> flawed vehicle...it's subject to other players gaming their system.
>
>
> Regarding the rest of your comment, I am certainly one of the 'inexperienced',
> so I have nothing else to add.