Speculators’ decision to raise bullish bets on U.S. natural gas was rewarded with a rally to the highest price since February.
Their net-long position across four natural-gas contracts rose 1.9 percent in the seven days ended April 15. Two days later, prices advanced the most in two months after a government report showed a second week of below-average U.S. stockpile gains, bolstering concern about tightening supply.
Inventories are 54 percent below the five-year average, the U.S. Energy Information Administration said April 17. Another year of record production will be needed to cut the shortfall by the end of October, when stockpiles may be at the lowest pre-winter level since 2008, according to EIA projections. Frigid weather since November helped send supplies last month to the lowest in 11 years.
“Right now the bullish sentiment is prevailing in term of that storage situation,” said John Kilduff, partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “It is surprising to have this kind of strength this time of the year. The past two injections haven’t lived up to expectations. The bullish sentiment is a hangover from this tremendous consumption we saw last winter.”
Net-long wagers on the four U.S. natural gas contracts rose a combined 7,793 to 426,010 in the week ended April 15, the most since Feb. 28, according to U.S. Commodity Futures Trading Commission data released April 18.
Futures rose 3.3 cents, or 0.7 percent, to $4.567 per million British thermal units on the New York Mercantile Exchange during the report week. They climbed 4.7 percent to $4.741 on April 17, the biggest one-day gain since Feb. 19 and the highest settlement price since Feb. 26, and slipped 4.4 cents to settle at $4.697 today.
The EIA said stockpiles increased by 24 billion cubic feet in the week ended April 11 to 850 billion. The five-year average gain for the week is 37 billion cubic feet. A week earlier, supplies rose by 4 billion, below the average gain of 9 billion.
Inventory increases lagged behind average levels as a cold front that brought freezing weather to parts of the Midwest and Northeast in mid-April was a continuation of the frosty winter that plagued much of the U.S. and sent fuel demand soaring. About 49 percent of households use gas for heating, according to the EIA.
Last month was the coldest March since 2002 in the contiguous 48 states, the National Climatic Data Center said, while gas demand in January was the highest on record at 104 billion cubic feet a day, according to the EIA.
The cold weather upended a seasonal trading strategy that held for the previous five years, when gas futures fell an average of 19 percent from the start of the year to early April. Prices this year climbed 12 percent through April 17.
Long wagers on four U.S. natural gas contracts rose 1.1 percent to 629,109 while short positions declined 0.5 percent to 203,099, CFTC data show. 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.
Hedge funds increased their bullish bets on West Texas Intermediate for a third straight week.
Net-long positions in the U.S. benchmark crude held by money managers, including hedge funds, commodity pools and commodity-trading advisers, rose by 3.1 percent to 341,477, according to the CFTC. Long positions gained by 10,876 to 365,619, the most since March 4, while shorts rose by 455 to 24,142, the first increase in three weeks.
Crude rose $1.19, or 1.2 percent, to $103.75 a barrel on the Nymex in the report week. Prices increased 54 cents to $104.30 on April 17.
Net-long bets on gasoline climbed by 15,929 futures and options combined, or 28 percent, to 73,525, the most since April 2, 2013, the CFTC data showed.
Futures advanced 6.2 cents, or 2.1 percent, in the reporting period to $3.0421 a gallon on the Nymex. The contract rose 1.42 cents to $3.0547 on April 17.
Regular gasoline at the pump, averaged nationwide, increased 0.1 cent to $3.669 a gallon yesterday, the highest since July 21, according to Heathrow, Florida-based AAA, the largest U.S. motoring group. The price has climbed every day since March 21.
Money managers’ bullish wagers on ultra low sulfur diesel, a category that includes heating oil, surged 5,074 futures and options combined, or 34 percent, to 20,139. The fuel gained 5.26 cents, or 1.8 percent, to $2.987 a gallon in the report week. The contract settled at $3.0082 on April 17.
U.S. marketed natural-gas production may increase 3 percent in 2014 from a record last year to 72.29 billion cubic feet a day as new wells come online at the Marcellus shale deposit in the Northeast, according to the EIA. Output has climbed every year since 2005. The U.S. met 87 percent of its energy needs in 2013, the highest since 1985.
The government agency estimates that a record 2.6 trillion cubic feet will flow into storage to reach its projection for 3.422 trillion by the end of October, which would be the lowest level for the time of the year since 2008.
“The market has the potential to trade significantly higher because we are coming off of the lowest storage levels since 2003,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “We need to have average storage injections 25 percent above the five-year average rate. The longer before we start that process, the more we are going to have to scramble to even do that.”