What are the traders saying?
July and August contracts (UNG) are both up more than 1% today trading at $2.93/MMBtu and $2.95/MMBtu. The move higher, according to some traders we spoke to, was more of a knee-jerk reaction to the dismal price action we saw yesterday.
“Nothing really changed on the fundamental front, but prices are moving higher today as I think the shorts are over exerting themselves.”
From the CFTC position disclosure last Friday, we know the shorts are starting to pile back into the market in a very meaningful way. Traders initially thought the drop in price was due to longs liquidating, when in fact, it was driven by the short-sellers.
“These guys are really doing all of us a favor here. When they drive prices lower like this, (power) burn increases, and storage falls. They will have to cover eventually as the fundamentals get too tight, and prices rise. It’s just a matter of time.”
Some of the other traders pointed to more bullish long term (3-4 weeks) as the reason we are seeing some signs of hope today.
When we asked about the potential for another gap lower over the weekend due to a bearish weather revision, traders thought the risk is definitely there, but the probability is low. “Most forecasters aren’t predicting very warm temps going into the weekend. Unlike last week, when everyone was warm biased.”
Traders in the meantime remain long and have rolled their long exposure into months down the curve.