Hedge Funds Boost Natural Gas Bets First Time in Six Weeks: Energy Markets

Hedge funds increased their bets that natural gas prices would rise for the first time in six weeks after hotter-than-normal weather stoked air-conditioning demand.

Natural gas climbed every day last week, the longest- winning streak since November, and advanced 36 cents, or 7.9 percent, to $4.923 per million British thermal units on the New York Mercantile Exchange. Hedge funds and other large speculators increased bullish bets by 14 percent the week ended July 27, the Commodity Futures Trading Commission reported.

“These guys were on the ball,” said Hamza Khan, an analyst at the Schork Group in Villanova, Pennsylvania. “The money managers were getting in. We saw a pop in prices.”

Investors retreated from natural-gas markets until the week ending July 20 as prices declined 12 percent amid forecasts that inventories will be near record highs by the end of October. So- called net-long positions fell for five straight weeks to the lowest level since January before rising last month as a heat wave across the U.S. East Coast reduced surpluses as demand for electricity increased.

Stockpiles climbed 28 billion cubic feet to 2.919 trillion in the week ended July 23, according to an Energy Department report on July 29, less than the 32 billion median forecast in a Bloomberg survey of 21 analysts. The increase was also smaller than the five-year average of 50 billion, department data showed.

Exceeds $5

Natural gas fell for the first time in six days on the Nymex today, dropping 22.2 cents, or 4.5 percent, to settle at $4.701 per million Btu. Gas traded as high as $5.007, surpassing $5 for the first time since June 21.

Higher-than-average temperatures may persist this week. A forecast last week showed that the East Coast will become hotter in the five days starting Aug. 3, according to Commodity Weather Group LLC in Bethesda, Maryland.

Chicago will have a high of 89 degrees Fahrenheit (32 Celsius) on Aug. 3, 5 degrees above average, according to AccuWeather Inc. in State College, Pennsylvania. Washington will hit 92 degrees.

Cooling requirements in the U.S. will be 17 percent higher than normal through Aug. 5, according to a forecast last week from Weather Derivatives of Belton, Missouri. About 23 percent of U.S. electricity is generated using natural gas, according to the Energy Department.

Hedge funds may cut wagers on rising prices this week because some of last week’s purchases were only to cover bets on declines, so-called short covering, said Tim Evans, an energy analyst at City Futures Perspective in New York.

‘Less Robust’

“The fact that the buying was dominated somewhat by short covering makes it somewhat less robust,” Evans said. “The ones that were covering shorts weren’t necessarily convinced that the prices will rise and fundamentals are stronger.”

Net-long positions in futures and options combined in four natural-gas contracts increased by 15,197 futures equivalents, or 14 percent, to 120,837 in the week ended July 27, the CFTC data showed

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

To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net

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