Hedge funds raise bearish outlook on US natural gas to record

By NAUREEN S. MALIK
Bloomberg

Hedge funds raised bearish bets on US natural gas to a record as warm weather threatened to crimp demand for the heating fuel this winter.

Money managers boosted net-short positions in four US gas contracts by 26% in the week ended Sept. 29, the most in US Commodity Futures Trading Commission data going back to 2010. Bullish speculators cut their long-only holdings to a record low.

Gas futures hit a three-year low this month after higher- than-average temperatures shrank demand for the power-plant fuel to the least since May. The slide in consumption is exacerbating a supply glut that’s expanding for the 10th straight year as production from shale formations such as the Marcellus and Utica floods the market, Energy Information Administration data show.

“The market doesn’t like to sell off before the winter, but we are headed toward record inventory levels, supply has not slowed down and there is consensus for a warm winter,” said Kyle Cooper, director of research with IAF Advisors and Cypress Energy Capital Management in Houston. “Compounding that is the EIA report showing July production hit a record level.”

Gas futures climbed 0.4% to $2.586/MMBtu on the New York Mercantile Exchange in the period covered by the CFTC report. They added 0.6% to $2.465 at 12:27 p.m. Singapore time. The fuel for delivery in November, the first of the five-month heating season, is trading at its lowest seasonal level since 2001.

El Nino

Speculators boosted short-only wagers, bets that prices will drop, by 2.9% during the report period to 422,075 contracts, a 16-week high, while long positions fell 5.9% to an all-time low of 280,523, CFTC data show.

A weather phenomenon known as El Nino threatens to deliver an unusually mild winter, subduing gas demand. “With a strong El Nino in play, we may be heading for a warmer than normal winter which would also certainly be bearish for nat gas going forward,” Dominick Chirichella, senior partner at the Energy Management Institute in New York, said in a note to clients.

Temperatures in Chicago are forecast to reach 68 degrees Fahrenheit (20 Celsius) on Oct. 12, 4 degrees above normal, AccuWeather said. Two days later, Manhattan temperatures are projected to climb to 4 degrees above the usual 71.

US gas inventories are already 4.5% above the five-year average and may top a 2012 record to reach 4 trillion cubic feet, banks including Societe Generale and BNP Paribas said.

Gas deliveries to electricity generators, which account for about a third of demand for the fuel, meanwhile slumped to the least since May 31, according to LCI Energy Insight, an analysis and consulting company in El Paso, Texas. Production marketed in the lower 48 US states rose in July to an all-time high in EIA monthly data, further depressing the price of the fuel, Cooper said.

“Those aren’t bullish factors,” Cooper said. “If anything, I’m surprised it’s not even lower.”

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