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CFTC is Cleaning House

|Includes: DTO, GDX, GLD, KOL, OIL, The United States Natural Gas ETF, LP (UNG), USO, XLE

 

Those pesky energy speculators made the news last week and gleaning from statements released by the CFTC, they are sure to adorn our headlines for the remainder of the summer. Chairman Gary Gensler plans to hold hearings in July and August to investigate whether there is a need for government imposed rules in oil and gas trading. “Our first hearing will focus on whether federal speculative limits should be set by the CFTC to all commodities of finite supply, in particular energy commodities such as crude oil, heating oil, natural gas, gasoline, and other energy products. This will include a careful review of the appropriateness of exemptions from these limits for various types of market participants” i.e. ETFs such as UNG and USO.   As we have previously stated, the massive drop in oil demand coupled with the substantial increase in oil inventories is inverse to what prices are reflecting.   In addition to position limits, regulators will look at increasing margins for futures contracts. A major factor in crude oil’s 14% drop since the beginning of the month, it looks as if the big players are shedding their longs to look a little less conspicuous while the CFTC cleans house.
Meanwhile, for the third week in a row, NYMEX natural gas fell sharply, losing 24 cents per MMBtu or 6.7%. Last Thursday’s EIA report added 75 billion cubic feet of gas to storage, keeping current levels well above the seasonal norm. UNG trading halted for a few hours on Tuesday because the ETF had reached its allowable capacity for outstanding shares issued (347.4 million) and is awaiting SEC approval for the creation of 1 billion new shares. However, as natural gas demand, which includes residential, and more importantly, industrial, continues to fade, so to may its price per MMBtu.