CFTC on Fri (11/3) showed that the large speculators increased their net long position in nat. gas from 41,233 lots to 47,986. This indicates that they liquidated 2,958 long positions and covered 9,711 short positions. On the oil side of this report they indicated that the large specs doubled their net short position in CL from 5,025 to 11,311 contracts. Nat. gas tumbled today (11/6) by -.394 proving that this is still not for the faint of heart ($3,940 per Dec contract). Held the short term support number of $7.45 (on settlement basis). CL saw some short covering today closing up .88 breaching the $60/bbl. mark on the settling basis. It will be interesting to see what type of follow through we see in tomorrow's trading, if in fact this CL up move was just shorts covering and NG longs liquidating. My Nat. Gas equity play was ERF (Enerplus Resources), it paid a great dividend and very well managed. Due your own duedilligence because this was a publicly traded Canadian trust and we all know that the government regulation has changed the tax advantage for public trusts. Shell is the world's largest nat gas producer (outside of Gazprom), so that could be the equity play for nat. gas.
Staying alive is half the battle. Breaking the 58.26 level was big last week, made a new low in CL for the year. GAP Roll on CL with December expiration is $58.26. That was accomplished this morning (we filled that Dec/Jan Gap roll), and it continued to sell off to $58.00. That is where we've found support for the day. I like the Jan - Mar HO spread (buying Jan and selling Mar HO) at the -.0700 level. I see that as a .0300 risk, and a reward potential of at least .0500 so if that relationship gets to the -.0800 level that makes the risk worth taking. We have a lot of heating oil stocks now, but the production of that product is minimal at best. I found an interesting play in equities thanks to this thread making me really think about an alternative to ERF. I found PDC, Pioneer Drilling Corp., and the fundamentals look tremendous. No long-term debt for this Nat. Gas E&P company, and that in itself is astounding to me. The stock is trading around $13.50, which is a P/E of 8, but I think that the stock could go to $15 easy with some further upside potential to the $19 - $20 level. Very bearish feel in the oils, and nat. gas will continue to trade on weather for the next few months. The market seems to view the 12-month Nat. Gas strip price either side of $8.00. Some trading days where there is a large front-month volatility to the up or down side the strip price has moved to $7.00 and $8.40 to the upside, however, it always seems to find its way to the $8.00 level.
Oil has fallen 30% so far from its peak. Whereas over the summer all you heard was $100 oil, now all you hear is $40.00 oil. I doubt that we will see $40.00 oil anytime soon. IMO the market is short term oversold, although all indications are bearish. I would be long for a short term pop only, with a close above $55.00 (USO) to get excited about long oil. Here is a chart of XLE and USO. Interesting divergence, high beta oil stocks may protect one better, puts and calls are expensive in terms of slippage and spread. XLE rallying slightly over its 50 day EMA. http://biz.yahoo.com/tm/061103/14985.html?.v=1