Hedge Funds' Bearish Gas Bets Pay Off With Slide to 17-Year Low

  • Gas futures settled on Feb. 25 at lowest since March, 19, 1999
  • Stockpiles of the heating fuel are at a seasonal record

For more than a year, hedge funds have held a bearish position in U.S. natural gas, betting that a ballooning supply glut would hammer prices.

They were right.

Just before gas futures tumbled to a 17-year low this week, money managers boosted their net-short position in contracts for the fuel by 31 percent. Their bearish bets jumped in the seven days ended Feb. 23 while their long wagers on prices rising were little changed, according to U.S. Commodity Futures Trading Commission data.

The U.S. natural gas market is collapsing as a mild winter fails to make a dent in stockpiles of the heating fuel, now at a seasonal record. Production continues to flow from shale basins. With spring less than a month away, the supply glut only stands to expand, weakening the chances of a rally into late 2016.

“For the purposes of the futures market, winter is over,” Thomas Saal, senior vice president of energy trading at FCStone Latin America LLC in Miami, said by phone Feb. 26. “We’re backed up with all of this supply, and there’s a lack of weather demand. It’s a recipe for lower prices.”

Gas futures fell 12.1 cents, or 6.4 percent, to $1.782 per million British thermal units on the New York Mercantile Exchange in the period covered by the commission’s report. They slid to $1.711 on Feb. 25, the lowest settlement since March 19, 1999.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE