Energy Market Update: January 15, 2020

We keep a close eye on the natural gas markets, but we don’t always talk about who’s making the moves that shape the market. Join Direct Energy Business Strategist Tim Bigler to find out what is driving today’s trends in this week’s Energy Market Update. 

Change is afoot, however, when it comes to the number of total open contracts for futures. For every futures contract, there is both a buyer and a seller; the 1:1 balance between these parties never changes, but the aggregate number of deals open at any given time is prone to fluctuation. This number has so far only increased this year, up from around 1.3M at the close of 2019 to 1.4M today. This indicates that while the $2.40 price support is holding, there are plenty of buyers and sellers willing to do business at that price.

The Commodity Futures Trading Commission (CFTC) disaggregates these contracts, allowing us to examine the actions of various groups of buyers. Importantly, there is a difference between how “managed money” (professional investors who conduct organized trading on behalf of clients) and “other reportables” (other large traders who aren’t managed money) are currently behaving in the market. The former happens to be sitting at a record net short position; in other words, “managed money” traders are willing to sell natural gas futures contracts for low prices. This behavior could be responsible for the low prices we’re currently seeing.

Obviously, if the managed money position changes, so could the market. In 2016, managed money went from net short to net long over the course of the year, which coincided with a jump in natural gas spot contract prices from less than $2/MMbtu to almost $4 by the end of the year. In 2020, with demand increasing and production decreasing, year-over-year, a turnaround by the managed money group could have the same effect on today’s market.

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