US gas speculators switch to net long for first time since 2014

4/13/2016

(Reuters) -- US natural gas speculators switched their positions from net short to net long for the first time since December 2014 as the market focuses on higher prices related to a brief increase in heating demand during a lingering cold spell in April.

Speculators in four major NYMEX and ICE markets changed their bets from bearish to bullish by adding 18,412 long contracts to become net long 16,611 contracts in the week to April 5, the US Commodity Futures Trading Commission said recently. That was the fourth weekly increase in longs (or decrease in shorts) in a row.

In the previous week ended March 29, the speculative position was net short by 1,801 contracts.

"Speculators were bearish for a long while, but a lot of those shorts expired with the end of winter," said Kent Bayazitoglu, director of market analytics at energy consulting firm Gelber & Associates in Houston, explaining that many firms use the March contracts as a proxy for the winter and April as a proxy for the spring/summer period.

Net shorts held by speculators reached a five-year high of 166,165 contracts in November after the market realized heating demand would likely be low this winter due to the warming effect of the El Niño weather pattern.

"Now we start off with a clean slate and will likely see more long trades since the market expects prices to rise in the future," Bayazitoglu said.

Gas futures have increased in four of the past five weeks in a technically driven, short-covering rally on forecasts for unseasonably cool weather in April.

Prices this week hit an eight-week high over $2/MMBtu.

Despite the recent price rally, analysts noted prices would likely have to remain low for the rest of 2016, but not necessarily as low as in recent weeks to prevent stockpiles from hitting storage limits at the end of October.

Spot gas prices at the Henry Hub benchmark have averaged $1.96 so far this year, while futures for the balance of 2016 were fetching $2.30. That compares with an average of $2.61 in 2015, the lowest level since 1999.

Looking ahead, analysts said they expect gas prices in 2017 to rise enough to encourage drillers to boost output to meet forecast growth in US pipeline and liquefied natural gas (LNG) exports and industrial demand.

Gas futures for calendar 2017 were trading around $2.81.

(Reporting by Scott DiSavino; Editing by Diane Craft and Chizu Nomiyama)