For several weeks the possibility/likelihood of a short covering rally similar to the December/early January rally has been discussed here. This past week’s trade is what a short covering rally looks like. The surprise was that open interest actually increased from Thursday through Thursday (remember that reporting of open interest statistics lags one day). Remember that when a contract is bought to “cover” one previously sold short open interest is reduced by one contract. Rather than falling, the total increased by 519 contracts and if the exchange’s estimate for Friday is anywhere accurate that total was reduced by 287 contracts…an addition of 232 contracts over six trading days when prompt gas gained $.325 on a daily closing basis. This would lead to the logical conclusion that at least an equal number of new contracts were bought to those bought to cover an existing short position…that combination of buying pushed the bid steadily higher, and is when all is said and done, a technical positive.
From its contract low on 04/15 $1.907, June gas has rallied .747 or 39%. The rally from mid – April through Friday’s close is the largest increase in a prompt June contract of the last ten years, but only slightly larger than the ’23 rally ($.654, 32.2%) that peaked at $2.685 on 05/19. As surprising as the extent of the rally from the May low may be, it is still not all that different from a year ago.
