Hedge Fund Natural Gas Wagers Jump on Tumbling Supplies: Energy

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A electric pumping unit removes crude oil from a Fidelity Exploration & Production Co. well outside South Heart, North Dakota. Close

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Photographer: Daniel Acker/Bloomberg

A electric pumping unit removes crude oil from a Fidelity Exploration & Production Co. well outside South Heart, North Dakota.

Hedge funds increased bullish bets on natural gas for the fifth time in six weeks as arctic weather stoked demand for the heating fuel, depleting stockpiles and sending prices to a five-year high.

Money managers’ net-long positions, or wagers on rising prices, jumped 5 percent in the seven days ended Feb. 18, to the highest level since May, U.S. Commodity Futures Trading Commission data show. Bearish bets slid 7.3 percent to the lowest level in more than two years.

Gas surged 15 percent during the period covered by the report as winter storms brought snow and below-normal temperatures to the eastern U.S. Forecasts show a polar blast returning to the region this week. Prices advanced to $6.40 per million British thermal units on Feb. 20, the highest intraday price since Dec. 4, 2008. Gas supplies dropped to 1.443 trillion cubic feet in the seven days ended Feb. 14, the lowest level for the time of year since 2004, government data show.

“The storage situation and another round of cold weather are the two main drivers right now,” said Dominick Chirichella, senior partner at the Energy Management Institute in New York. “The market is focused on end-of-season inventories. It’s a precarious situation, especially if we get a hot summer or any hurricane activity.”

Surging Prices

Natural gas jumped 72.7 cents to $5.551 per million Btu on the New York Mercantile Exchange in the week covered by the report. The contract for March delivery tumbled 11 percent to settle at $5.445 today after reaching $6.493 in intraday trading, the highest since Dec. 2, 2008. Futures are up 29 percent this year, the biggest gainer after coffee in the Standard & Poor’s GSCI index of 24 commodities.

Prices surged 8.3 percent on Feb. 13 after a government report showed the biggest February stockpile decline since 2007, with winter storms raising demand across eastern states.

The Energy Information Administration, the Energy Department’s statistical arm, said gas inventories tumbled by 237 billion cubic feet in the week ended Feb. 7, 46 percent more than the average drop for the period over the past five years. A week later, the EIA said supplies slid 250 billion through Feb. 14, bringing stockpiles to a record 34 percent below the five-year average. The EIA also revised the Feb. 7 decline to 230 billion.

Weather Outlook

Futures slipped Feb. 14 as meteorologists predicted milder weather that would curb heating demand. Prices rebounded on Feb. 18, reaching a two-week high, as the second winter storm in three days brought snow and cold weather to the Northeast.

Nymex floor trading was closed Feb. 17 for the Presidents Day holiday in the U.S.

The weather will be colder than normal in the eastern two-thirds of the U.S. from Feb. 25 through March 6, MDA Weather Services in Gaithersburg, Maryland, said Feb. 21.

The low in New York on Feb. 27 may be 20 degrees Fahrenheit (minus 7 Celsius), 11 below average, according to AccuWeather Inc. in State College, Pennsylvania. Temperatures in Chicago may plunge to 2 degrees, 23 less than normal. About 49 percent of U.S. households use gas for heating, EIA data show.

Market Condition

“The story right now, especially with the length accumulating at the front of the price curve, is a market that is under-supplied,” said Teri Viswanath, the director of commodities strategy at BNP Paribas SA in New York. “This is really about scarcity pricing. It appears that we’re going to be in for a couple more weeks of very cold conditions.”

Net-long positions on four U.S. natural gas contracts held by money managers climbed by 20,872 futures equivalents to 442,009 in the week ended Feb. 18, the most since the week ended May 28, according to the CFTC. Long positions increased by 6,835, or 1.1 percent, while bearish bets slid 14,037 to 178,370, the lowest level since May 31, 2011.

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.

In other markets, hedge funds and other large speculators increased bullish crude oil wagers by 25,836 futures and options combined, or 8.4 percent, to 331,857.

WTI Crude

WTI crude advanced 2.5 percent to $102.43 a barrel on the Nymex in the week covered by the report and settled at $102.20 on Feb. 21. Oil jumped to the highest since October on Feb. 18 on speculation that inventories in Cushing, Oklahoma, the delivery point for Nymex futures, declined while cold weather boosted fuel demand. Price rose to $103.31 the following day, also the highest in four months.

Net-long positions in gasoline held by money managers, including hedge funds, commodity pools and commodity-trading advisers, gained by 14,748 futures and options combined, or 58 percent, to 40,351, the CFTC report showed. It was the biggest percentage increase since the seven days ended July 16.

Futures climbed 2.9 percent to settle at $2.8323 a gallon on the Nymex in the week covered by the report and closed at $2.8333 on Feb. 21.

Gasoline at U.S. pumps, averaged nationwide, gained 1.5 cents to $3.409 a gallon on Feb. 22, according to data from Heathrow, Florida-based AAA, the nation’s largest motoring group. The fuel increased 16 consecutive days to the highest price since Sept. 27.

Money managers’ bets on ultra-low sulfur diesel advanced by 5,517, or 19 percent, to 34,593 futures and options combined, the CFTC report showed. Futures rose 2.4 percent to $3.1017 a gallon in the week covered by the report and settled at $3.0992 a gallon on Feb. 21.

“Any downside correction for gas is going to be limited,” said Chirichella of the Energy Management Institute. “The market is going to be supported.”

To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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