Gas Bears Hibernate as U.S. Cold Boosts Prices After Slump

Updated on
  • Money managers reduce net-short position by 17 percent
  • Futures capped biggest weekly gain since 2014 on weather scene

Wintry weather has descended on the eastern U.S., driving natural gas bears into hibernation.

Money managers cut their net-short position in gas contracts by 17 percent to 101,695 in the week ended Dec. 29, the biggest percentage drop in seven weeks. Bearish bets fell 5.5 percent, while long wagers were little changed, according to U.S. Commodity Futures Trading Commission data.

Gas futures have rebounded from a 16-year low as forecasts show below-normal temperatures that would boost heating demand after record December warmth. Prices surged 15 percent in the seven days ended Jan. 1, capping the biggest weekly gain since February 2014, on speculation that frigid weather will erode an inventory glut.

“We’re seeing the return of this thing called winter,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said by phone. “Hedge funds are starting to get a bit more optimistic, so more traders are covering their short positions.”’

Gas futures jumped 48.4 cents, or 26 percent, to $2.372 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Gas fell 2.5 percent to $2.275 at 12:33 p.m. Prices slid Dec. 18 to the lowest intraday level since March 1999.

The low in Chicago on Jan. 11 may be 9 degrees Fahrenheit (minus 13 Celsius), 9 less than average, data from AccuWeather Inc. show. Natural gas stockpiles were 13.5 percent above the five-year average as of Dec. 25, the biggest surplus since 2011 for the time of year.

“With a prolonged cold snap, we could really extend this rally,” Flynn said. “Traders are speculating that the gas market has finally hit bottom.”