Gas Bulls Cut Bets by Most in 8 Months as Supply Gap Shrinks

Jul 07, 2014 3:27 pm ET

(Updates with settlement prices starting in fifth paragraph.)

July 7 (Bloomberg) -- Hedge fund managers’ retreat from bullish natural gas bets is becoming an exodus as mild weather and rising production erode a record supply shortfall.

Money managers cut net-long positions, or wagers on rising prices, by 15 percent in the seven days ended July 1, according to the Commodity Futures Trading Commission data. Net-long bets fell by the most since November. Long positions slumped 9.2 percent while bearish bets dropped by 2.7 percent.

A deficit to five-year average gas stockpiles has narrowed to 29 percent from an all-time high of 55 percent in April at the end of a frigid U.S. winter. Gross gas output in the lower 48 states rose to a record in April as new wells came online in Texas, Energy Information Administration data show. Commodity Weather Group LLC predicted mostly normal July weather that would limit demand from power plants.

“The pace of storage injections has gotten the market’s attention,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Rising production and a lack of early-season power demand have bullish traders back on their heels.”

Natural gas fell 8 cents to $4.455 per million British thermal units on the New York Mercantile Exchange in the week covered by the report. The fuel then slid 1.1 percent over the next two days to settle at $4.406 per million Btu on July 3. Prices sank to $4.225 today, the lowest settlement since Jan. 10.

Prices Drop

Gas futures dropped 1.8 percent in June and have tumbled 35 percent from a 10-month high reached in February. Government reports have shown eight consecutive triple-digit injections into storage since May 9, the longest streak in 20 years of data. Inventories totaled 1.929 trillion cubic feet as of June 27.

“The injection season has gotten off to a fantastic start, considering where we were at the end of the winter,” Stephen Schork, president of Schork Group Inc., a consulting firm in Villanova, Pennsylvania, said in a phone interview today. “We’re doing everything we potentially can to mitigate the deficit.”

Natural gas production in the lower 48 states rose 1.3 percent in April to a record 77.52 billion cubic feet a day from the previous month, the EIA, the Energy Department’s statistical arm, said in a June 30 report.

Record Output

Output from the Marcellus shale deposit in the Northeast will climb 1.9 percent in July to 15 billion cubic feet a day from 14.7 billion a month earlier, the agency said June 9 in its monthly Drilling Productivity Report.

The high in Chicago on July 12 may be 82 degrees Fahrenheit (28 Celsius), 3 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. Atlanta temperatures may reach 88 degrees, matching the normal reading for the day.

Power plants account for 31 percent of gas consumption, according to the EIA, the Energy Department’s statistical arm.

In other markets, hedge funds reduced wagers on rising crude-oil prices for a second week as the conflict in Iraq has so far spared the country’s main oil-producing region.

WTI Crude

Net-long bets on West Texas Intermediate dropped 15,135 contracts futures and options combined, or 4.4 percent, in the week ended July 1 to 330,148, according to the CFTC. Wagers reached a record high of 356,336 on June 17.

WTI crude slipped 0.7 percent to $105.34 a barrel on the Nymex in the week covered by the report and settled at $103.53 today.

Net-long positions in gasoline held by money managers, including hedge funds, commodity pools and commodity-trading advisers, rose by 394 futures and options combined, or 0.6 percent, to 66,982, the CFTC report showed. Futures slipped 2.9 percent to $3.0366 a gallon in the week covered by the report. Gasoline closed at $2.989 today.

Gasoline at U.S. pumps, averaged nationwide, dropped 0.1 cent to $3.655 a gallon yesterday, according to Heathrow, Florida-based AAA, the nation’s largest motoring company.

Money managers’ bets on ultra-low sulfur diesel fell by 1,893, or 4.7 percent, to 38,488 futures and options combined, the CFTC report showed. Futures slid 2.1 percent to $2.9782 a gallon in the week covered by the report and settled at $2.9145 today.

Natural Gas

Net-long wagers on four U.S. natural gas contracts held by money managers dropped by 45,362 futures equivalents to 254,831 in the week ended July 1, the lowest level since December 3, according to the CFTC. Bearish bets slipped by 7,158 while long positions declined by 52,520.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

“The two-week weather outlook is pretty normal, which isn’t helpful for gas demand,” Again Capital’s Kilduff said. “There isn’t a compelling case for a bull market at this point.”