Natural Gas Traders Wrong-footed by Slide to Three-Year Low

  • Money managers cut net-short positions first time in 4 weeks
  • Gas Stockpiles may reach record level by end of month

Natural-gas traders retreating from bearish bets were stung as the outlook for record stockpiles pushed prices to a three-year low.

Money managers reduced net-short positions in four gas contracts by 3 percent in the week ended Oct. 13, the first decline in four weeks,  U.S. Commodity Futures Trading Commission data show. Short-only bets fell 1.4 percent. Long positions slipped 0.6 percent for the third straight decrease.

Prices rose in the report period with the imminent arrival of winter, the peak-fuel demand season, causing traders to cover their short positions. Futures reversed course when the government’s weekly report showed inventory gains accelerated, sending gas to a fresh three-year low.

“The market is being determined by the short sellers,” Aaron Calder, a senior market analyst at Gelber & Associates in Houston, said Friday. “We are going to have a record amount of gas in storage. They are so unafraid of the winter.”

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.
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.

Gas futures rose 1.1 percent to $2.498 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices resumed their slide to $2.43 on Friday, the lowest settlement since June 2012. Futures closed up 0.5 percent at $2.442 Monday.

A cool front will linger through Oct. 28 before unusually mild weather sweeps most of the lower 48 states, said MDA Weather Services in Gaithersburg, Maryland.

Boston’s low on Oct. 23 will be 37 degrees Fahrenheit (3 Celsius), 7 below
normal, before jumping a week later to 51, according to AccuWeather Inc.’s
website. About 49 percent of U.S. households use gas for heating.

Gas inventories expanded by 100 billion cubic feet in the week ended Oct. 9 to 3.733 trillion cubic feet, topping the five-year average gain of of 87 billion for the period, U.S. Energy Information data show. Analysts were expecting a storage injection of 90 billion, making it their biggest miss since May. 

Source: Weekly natural-gas inventories reported by the U.S. Energy Information Administration

Stockpiles are set to reach a record by the end of this month. The EIA sees storage levels peaking at 3.956 trillion, which would top the November 2012 high of 3.929 trillion.  

“Absolute storage levels threatening to hit a record 4 tcf peak,” Tudor, Pickering, Holt & Co. analysts led by Dave Pursell wrote in a note to clients Friday. Combined with the threat of more pipelines expanding Northeast supply from the Marcellus and Utica shale deposits in the East, these factors are “not supportive of meaningful price appreciation this winter,” the report said.

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