Hedge-fund managers have built a record short position in US natural gas on expectations for an unusually mild northern winter that points to anemic demand for the furnace and power-plant fuel. Money managers have increased short-only exposure, or bets on prices falling, across seven benchmark Henry Hub contracts to 599,731, according to Commodity Futures Trading Commission data released Friday. It’s the largest in data going back to May 2013.
The net-short position on US gas rose to 192,728, the most bearish in more than six years, while bullish bets dropped to the lowest in almost two years. Benchmark US gas futures plummeted more than 15% for the largest weekly decline since February, as forecasts shifted warmer for the first months of the northern winter. Gas bulls typically count on colder weather to boost demand for the fuel to run furnaces and power plants.
Commodity Weather Group is predicting this month and next will be the third-warmest months in records going back to 1950. The bearish bets, while reflecting traders’ growing conviction that the so-called Super El Niño weather pattern will bring very mild weather, also increases the risk of a short squeeze. Any sudden, severe cold snap can send gas demand surging while slashing production, lifting prices as traders scramble to rapidly close out short positions to forestall losses.
A winter storm-driven short squeeze exacerbated the historic gas rally that took place in late January, when money managers reduced short-only positions by more than 53,000 lots in a single week, the largest decline in more than a year.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing