US gas market extends rally as traders see possible bottom

By CHRISTINE BUURMA
Bloomberg

Wintry weather has descended on the eastern US, driving natural gas bears into hibernation.

Money managers cut their net-short position in gas contracts by 17% to 101,695 in the week ended Dec. 29, the biggest percentage drop in seven weeks. Bearish bets fell 5.5%, while long wagers were little changed, according to US Commodity Futures Trading Commission data.

Gas futures have rebounded from a 16-year low as forecasts show below-normal temperatures that would boost heating demand after record December warmth. Prices surged 15% in the seven days ended Jan. 1, capping the biggest weekly gain since February 2014, on speculation that frigid weather will erode an inventory glut.

“We’re seeing the return of this thing called winter,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Hedge funds are starting to get a bit more optimistic, so more traders are covering their short positions.”’

Gas futures jumped 48.4 cents, or 26%, to $2.372/MMBtu on the New York Mercantile Exchange in the period covered by the CFTC report. Gas fell 3% to $2.264 at 8:35 a.m. Prices slid Dec. 18 to the lowest intraday level since March 1999.

The low in Chicago on Jan. 11 may be 9 degrees Fahrenheit (minus 13 Celsius), 9 less than average, data from AccuWeather show. Natural gas stockpiles were 13.5% above the five-year average as of Dec. 25, the biggest surplus since 2011 for the time of year.

“With a prolonged cold snap, we could really extend this rally,” Flynn said. “Traders are speculating that the gas market has finally hit bottom.”

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