Hedge Funds Cut Gas Shorts to Least Since 2014 as Bears Cash Out

  • Net-short positions at lowest level since December 2014
  • Bears are cashing out after collapse: Again Capital partner

Speculators cut their bearish wagers on U.S. natural gas last week to the lowest level since 2014.

Don’t be fooled -- they aren’t betting on a rally, according to Again Capital LLC. The 95 percent decline in hedge funds’ net-short positions only shows the bears are cashing out after profiting from the heating fuel’s plunge to a 17-year low, said John Kilduff, partner at the commodities investment firm in New York.

“It has been such a spectacular run as you see the shorts close out the trades right now,” Kilduff said by phone Friday. “This is an epic supply glut. Words almost can’t describe its enormity.”

Even a recent burst of chillier-than-normal weather wasn’t enough to eat into gas stockpiles, which have remained near a seasonal record. The surplus is now 51.9 percent above the five-year average, the most since 2012 based on U.S. Energy Information Administration data. Futures plunged to as low as $1.611 per million British thermal units last month and a comeback since then is showing signs of faltering amid the glut.

Long Bets

While short positions slid 6.3 percent in the week ended March 29, longs only gained 3.7 percent, U.S. Commodity Futures Trading Commission data show. And prices may test the lows of last month with demand slumping in mild spring weather, Kilduff said.

“When you see a lot of shorts get out of the market, it’s an opportunity,” he said. “They basically have more ammo to come back into this market.”

Gas futures climbed 4 cents, or 2.2 percent, to $1.903 per mmBtu on the New York Mercantile Exchange in the period covered by the trading commission’s report. They settled at $1.956 on Friday.

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