Throughout 2012 and into this January natural gas producers have done far more hedging than consumers with the Henry Hub NYMEX futures contract. Producers are still locking in higher prices on the forward curve to protect the value of their future production in the ground. Today we review trends in hedger sentiment.
Back in June 2012 we wrote about how the Commodity Futures Trading Commission (CFTC) weekly Commitment of Traders (COT) report for the natural gas Henry Hub contract provides insight into market hedging sentiment (see The Long and Short of it -COT Reporting). Today we update that analysis. Many new members have signed up to RBN Energy since June so we will bring you all up-to-date with the COT report and then look at what the report tells us about hedging sentiment in 2013.
The CFTC are the traffic cops for the commodity futures markets in the United States. They have a wide range of responsibilities to police market behavior including monitoring participant’s positions in key commodities. Positions are the number of futures contracts that a participant holds that are “open” i.e. not yet offset by another transaction, by delivery or by exercise. These open positions are commonly referred to as “open interest”. The CFTC monitors open interest to make sure that individuals or companies do not accumulate market power through a dominant position in a particular commodity. During the past two years the CFTC has been deeply involved in the implementation of the Dodd Frank market reform legislation. In that capacity they will be increasing the number of commodity contracts for which they track positions.
The CFTC monitors trader positions on the exchanges throughout the day. Futures broker firms file daily reports that show the positions of traders above specific reporting levels set by CFTC regulations. The information in the daily reports enables the Commission to track the exposure of individual traders or classes of traders in real-time and considerable detail, identifying unusual trading patterns or the accumulation of unlawful positions.
Although most of the daily position data is not available to the public the CFTC publishes a weekly COT report every Friday at 15:30 Eastern Time. The report picks apart the open interest data to provide the market with insight into the volume of positions held by certain types of market participant as of the previous Tuesday.
The traders reporting to the CFTC are pigeon holed into different categories, depending on their position in the market. These categories have changed over time and they vary by commodity. Since 2009 the CFTC categories for natural gas futures are as follows:
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