WTI Crude And Natural Gas: Traders Need To Avoid Trading On Emotions
Satendra Singh | Sep 10, 2022 03:02AM ET
Being an energy analyst, I feel that there is nothing like bulls and bears in the world of trading. Only emotions make the same human behave like a bull or a bear.
Despite repeated losses, emotions cap the ability to think logically about defying fundamental realities or the cause behind a sudden false breakout. No doubt that a sudden surge could be the immediate reaction to the news flow that proves to be short-lived.
In reality, a trader who trades natural gas, a highly liquid commodity, changes his side all of a sudden and turns into a bear as the emotions again compel him to start selling profusely.
This sudden behavioral change results in repeated losses as some deep pocket Hedge Funds take all the gains due to the sudden changes in mass behavior.
The current uptrend has turned into a steep slide since Aug. 30, but most traders are emotionally attached with bullish sentiments as they still dream about the new peak tested by the natural gas futures at $11 or $12.
On the other hand, deep-pocket Hedge Funds entered the scenario with the Russian invasion of Ukraine on Feb. 24, 2022, while the natural gas futures were trading at $4.676 on Feb.23, 2022.
The natural gas futures had tested a high at $5.576 on Feb. 2 and a low at $3.884 on Feb. 11 before this unexpected event.
The natural gas futures continued to trade in a narrow range between Feb. 12 to Mar. 21, well below the stiff resistance at $4.929, before finding a breakout on Mar. 22.
Most natural gas traders were full of bearish emotions. Moreover, most bearish traders criticized the analysts who tried to unearth the advent of an uptrend.
I had opined that this was an advance indicator of the advent of an uptrend in natural gas futures as the geo-political moves and the technical formation in daily charts were evidence of an uptrend.
The natural gas futures witnessed some selling spree in-between this uptrend till they hit the first seasonal peak at $9.665 on June 8, 2022.
Natural gas traders felt this storage phobia hover over the natural gas price movements during the whole month of August and September.
This is what I had predicted well in advance. Still, most traders were emotionally involved with the bullish sentiments created by some deep pocket Hedge Funds, which defied all prevailing fundamentals.
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I had also written about what was an advance indicator of a sharp slide WTI Crude Oil price. The WTI Crude Oil Futures witnessed a sharp selling spree after hitting a peak at $130.50 on Mar. 7, 2022, and a low at $81.20 on Sept. 8, 2022.
Russia’s announcement to shut Nord Stream 1 pipeline for an undisclosed period as it found leaks during maintenance on Aug. 29, 2022, has added one more leg to this issue: the supply shortage of the major energy components.
Once again, I warned about the downward trend in the WTI Crude oil and natural gas prices while writing an analysis on Jun. 13, 2022, which fetched a lot of attention from the alert readers.
Oil prices rose Friday, helped by weakness in the U.S. dollar, but are still on course for their lowest weekly close in seven months on concerns of sluggish economic growth and China’s COVID woes weighing on global demand.
Finally, I conclude that the energy price scenario for the bulls could turn uglier if they remain stuck with bullish emotions instead of digesting the latest developments on the international front, as the G7 nations have agreed on Friday to cap Russian oil prices.
Disclaimer: The author of this analysis does not have any position in natural gas futures. Readers are advised to take any position at their own risk, as Natural Gas is one of the most liquid commodities in the world. Remember, YOU push the buy button and the sell button. Investors are constantly reminded that before making any investment, you should do your proper due diligence on any name directly or indirectly mentioned in this article. Investors should also consider seeking advice from an investment and tax professional before making any investment decisions. Any material in this article should be considered general information and not relied on as a formal investment recommendation.
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