Hedge Fund Gas Bulls Hit Jackpot as U.S. Prices Surge to $3

Hedge funds’ bullish wagers on U.S. natural gas have paid off in a big way.

Money managers lifted net-long gas bets for a second week to the highest since 2014 just as futures topped $3 per million British thermal units for the first time in 16 months. Unusually warm weather for this time of year has pushed gas demand from electricity generators to a record, helping to trim a supply surplus that was weighing on prices.

“The stars really aligned for the hedge fund bulls,” John Kilduff, a partner at Again Capital LLC in New York, said by phone Friday. “There have been a lot of bullish stirrings in the market because of the warm weather and the erosion of the supply surplus.”

Gas futures have made a dramatic recovery after a warm winter left prices languishing near 1990s-era lows in March. Scorching summer heat boosted air-conditioner use, eroding an inventory surplus as drillers cut costs and trimmed production from shale reservoirs. Stockpiles may fall below normal levels before the winter, leaving the market vulnerable to price spikes.

“The market is getting more and more nervous about the supply situation going into the winter,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “Traders are doing the math and seeing that inventories are getting tighter with every storage report.”

Funds increased their long bets on U.S. gas in the week ended Sept. 20 while paring their short bets, U.S. Commodity Futures Trading Commission data show.

Gas futures were up 4.7 percent during the report week, closing at $2.955 on Friday. Prices climbed to $3.098 in intraday trading Sept. 21, the highest since May 2015.

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