Bearish speculators who dominated the U.S. natural gas market last year are showing no signs of backing off.
Money managers more than doubled their net-short position in the week ended Feb. 16 to 50,018 futures equivalent in four gas contracts, according to the Commodity Futures Trading Commission data. The gas market has been net short every week since the end of 2014, a record in CFTC data going back to 2010. Long-only bets slipped 3.8 percent while bearish wagers gained 3.9 percent.
Gas prices have tumbled to the lowest levels for this time of the year since 1999 amid record production and a lackluster winter from the Midwest through the East Coast, the biggest consuming regions for heating fuels. The rout may not be over. Temperatures through the lower 48 states will be above normal through Feb. 23, with more seasonal readings the following 10 days, according to Commodity Weather Group LLC.
“My assumptions of the market have definitely been challenged,” said Aaron Calder, senior market analyst at Gelber & Associates in Houston. “It’s really like demand is in quicksand.”
Gas futures fell 19.5 cents, or 9.3 percent, to $1.903 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices extended declines to a settle at a two-month low of $1.804 on Friday.
Production of the heating and power-plant fuel in the lower 48 states expanded 4 percent this year to 82.60 billion cubic feet a day in the week ended Feb. 11, toppling the previous high set last April, according to PointLogic Energy data compiled by Bloomberg.
As drillers cut spending because of low energy prices, gas output may slow and show a net decline in 2016 as the drop in rig count offsets increased efficiencies, Hamza Khan, head of commodities strategy for ING Bank NV, said in an interview at Bloomberg headquarters in New York on Feb. 17.
A decline of a few percentage points year-over-year won’t make much of a difference, he said. “Once the genie’s out of the bottle, it’s not going back in.”