Hedge funds cut bullish bets on natural gas by the most since August as storms steered clear of production in the Gulf of Mexico and weak demand boosted a U.S. stockpile surplus.
Hedge funds and other large speculators reduced wagers on rising prices by 25 percent in the seven days ended Sept. 28, according to the weekly Commitments of Traders report from the Commodity Futures Trading Commission. Natural gas declined 2.1 percent that week.
“There’s no one as bearish as a disappointed bull,” said Tim Evans, an energy analyst with Citi Futures Perspective in New York. “Speculators and money managers liked the long side of the market. They positioned themselves net-long. And they have been very, very disappointed,” he said.
Natural gas has declined 33 percent this year on speculation demand will be slow to recover as the U.S. emerges from the deepest recession since the 1930s and forecasters expect higher-than-normal temperatures in the heating season.
Futures for November delivery fell 7 cents, or 1.8 percent, to settle at $3.727 per million British thermal units on the New York Mercantile Exchange.
Net-long positions in futures and options combined in four natural-gas contracts decreased by 17,373 futures equivalents to 51,306 in the week ended Sept. 28, the CFTC data showed.
The measure of natural-gas 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.
“The bulls don’t have any momentum,” said Hamza Khan, an analyst at the Schork Group Inc., a consulting company in Villanova, Pennsylvania. “They don’t have a leg to stand on.”
Gas stockpiles rose 74 billion cubic feet in the week ended Sept. 24 to 3.414 trillion, the Energy Department said last week. The five-year average gain for the week is 67 billion cubic feet. A surplus to the five-year average climbed to 6.3 percent from 6.2 percent the previous week.
Inventories will peak at 3.687 trillion cubic feet before cold-weather demand prompts utilities to pull gas from storage, the department predicted in its monthly Short-Term Energy Outlook on Sept. 8. Stockpiles rose to a record 3.837 trillion cubic feet last November.
Speculation that the hurricane season would curb production in the Gulf of Mexico has begun to fade, Khan said. The federal waters in the Gulf produce 10 percent of U.S. natural gas, according to the Energy Department.
The most active part of the Atlantic hurricane season is from Aug. 20 to about Oct. 20, according to William Gray, who pioneered seasonal forecasts at Colorado State University in Fort Collins.
A total of 7.9 billion cubic feet of gas production was shut in from June through August because of storms, lower than projections of 57.4 billion, the Energy Department said in its Sept. 8 outlook.
A low pressure area over the Northern Caribbean Sea has a 10 percent chance of becoming a tropical cyclone during the next 48 hours, according to the National Hurricane Center. A weather system 900 miles east of the Lesser Antilles has a 30 percent chance of becoming a cyclone.
Storms can hurt natural gas demand when they miss the Gulf of Mexico and drench the U.S. East Coast, curbing air-conditioning demand, Khan said. Traders are also anticipating a U.S. winter that is forecast to be warmer than usual, he said.
Northeast and central U.S. states are predicted to be warmer than normal from October to December, while the Southeast and the Pacific Northwest will have cooler weather, according to The Weather Channel’s WSI Corp.
About 23 percent of U.S. electricity is generated using natural gas, according to the Energy Department. About 53 percent of U.S. households use it for heating.
In other markets, hedge funds and other large speculators raised bets that gasoline prices would climb for the fourth straight week, increasing net-long positions by 2,606 futures and options combined, or 13 percent, to 22,732.
Managed money’s net-long positions in crude oil rose 10,583, or 10 percent, to 116,906. Net-long positions in heating oil climbed 787, or 2.6 percent, to 31,266.