Hedge funds got more bullish on natural gas, betting the most on rising prices in 11 weeks as cold weather in the U.S. diminished fuel inventories.
Money managers boosted net-long positions by 44 percent in the seven days ended Dec. 10, U.S. Commodity Futures Trading Commission data show. The total was the most since Sept. 24. Bullish wagers increased for a third week.
Gas surged 6.6 percent during the report week as forecasts showed widespread below-normal temperatures. MDA Weather Services in Gaithersburg, Maryland, predicted it would be colder than average in most of the contiguous U.S. from Dec. 23 through Dec. 27. A government report on Dec. 5 showed a weekly drop in gas supply that surpassed analysts’ estimates.
“The weather has been incredibly cold,” said Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York. “The expectation is that we’re going to see stockpiles continue to be depleted by this boost in heating demand, so investors are increasing bullish bets on the natural gas futures contract.”
Natural gas jumped 26.1 cents to $4.237 per million British thermal units on the New York Mercantile Exchange in the week covered by the report. The fuel rose to $4.409 on Dec. 12, the highest settlement since July 20, 2011. Gas slipped 7.2 cents, or 1.7 percent, to settle at $4.279 per million Btu today. Prices are up 28 percent this year.
Gas rose to a six-month high on Dec. 5 after a government report showed the biggest November stockpile decline on record as frigid weather spurred heating demand. The Energy Information Administration said inventories tumbled 162 billion cubic feet in the week ended Nov. 29 to 3.614 trillion. Analyst estimates compiled by Bloomberg predicted a withdrawal of 146 billion. The five-year average drop for the period was 41 billion.
EIA data released Dec. 12 showed supplies fell by 81 billion cubic feet in the week ended Dec. 6 to 3.533 trillion, compared with the five-year average drop of 76 billion. Supplies were 3 percent below the five-year average and 7.2 percent less than last year’s supplies for the period, EIA data show.
Gas prices slid from that high on Dec. 6 as forecasts showed a shift to milder weather after an arctic blast. The futures then climbed on Dec. 9 and Dec. 10 as an icy storm fueled by the coldest air of the season blanketed the U.S. from coast to coast, bringing snow and sleet.
The cold weather has disrupted gas output by causing so-called freeze-offs, when water in the wells crystallizes and blocks the flow of hydrocarbons, according to Mike Tran, an analyst at CIBC World Markets in New York. Supplies have dropped by about 1.5 billion to 1.8 billion cubic feet a day, Tran said.
Gross gas production in the lower-48 states slid 0.8 percent in September to 73.91 billion cubic feet a day from a revised 74.49 billion the previous month, the EIA said Dec. 6 in a monthly report.
The low in Chicago on Dec. 25 may be 13 degrees Fahrenheit (11 Celsius), 7 less than usual, according to AccuWeather Inc. in State College, Pennsylvania. The temperature in New York may fall to 22 degrees, 7 below average.
About 49 percent of U.S. households use gas for heating, according to the EIA, the Energy Department’s statistical arm.
The U.S. may have 3.4 percent more heating-degree days, a measure of weather-driven energy demand, from November to March compared with the same period last year, Commodity Weather Group LLC in Bethesda, Maryland, said in a Nov. 25 seasonal outlook.
“If temperatures stay below normal, traders are going to continue to reduce their short positions in natural gas,” said Phil Flynn, a senior market analyst at Price Futures Group in Chicago. “The next storage withdrawal is probably going to be a whopper.”
Net-long bets on four U.S. natural gas contracts held by money managers climbed by 82,574 futures equivalents to 271,068 in the week ended Dec. 10, according to the CFTC. Bearish bets slid by 42,470, while long positions rose by 40,104.
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 5,538 futures and options combined, or 2.3 percent, to 252,199.
WTI crude gained $2.47, or 2.6 percent, to $98.51 a barrel on the Nymex in the week covered by the report and settled at $96.60 on Dec. 13. Oil rose to a six-week high on Dec. 10 amid speculation that government data would show a second consecutive drop in U.S. inventories.
Net-long positions in gasoline held by money managers, including hedge funds, commodity pools and commodity-trading advisers, climbed by 221 futures and options combined, or 0.5 percent, to 45,745, the CFTC report showed. Futures slid 4.08 cents a gallon, or 1.5 percent, to $2.6829 in the week covered by the report. Gasoline settled at $2.6293 on Dec. 13.
Gasoline at the pump, averaged nationwide, fell 0.5 cent to $3.248 a gallon, the fifth consecutive decline, Heathrow, Florida-based AAA said Dec. 13 on its website.
Money managers’ bets on ultra-low sulfur diesel advanced by 6,373, or 33 percent, to 25,551 futures and options combined, the CFTC report showed. Futures slipped 1.6 percent to $3.0173 a gallon in the week covered by the report and settled at $2.9757 a gallon on Dec. 13.
“We’re looking at a very different outlook for natural gas in 2014 compared with a few months ago,” Viswanath said. “With a very cold winter, we may turn a corner and have a market in equilibrium rather than a market with too much supply.”