Photographer: F. Carter Smith/Bloomberg

Natural Gas Bears Stage Biggest Retreat in 11 Months Amid Rally

  • Hedge funds cut short gas bets amid shrinking supply glut
  • Futures may be headed back down before winter: Kilduff

The rapidly disappearing glut of natural gas in the U.S. is scaring the bears away.

Last week, hedge funds staged their biggest retreat from short gas bets since September 2016 as futures rallied on a shrinking supply surplus. They cut their bearish positions in seven U.S. gas contracts by 19 percent, U.S. Commodity Futures Trading Commission data show. Bullish bets were meanwhile little changed.

The retreat may signal a turnaround for a market that’s been battered for years by a stubborn supply glut brought on by record volumes of gas flowing out of U.S. shale formations. Gas futures surged above $3 per million British thermal units on Aug. 14 after a government report showed the surplus is shrinking amid increasing exports. Weather forecasts also showed some heat may emerge, which would increase demand for the power-plant fuel as people blast their air conditioners.

“There is a lot of support in the market” because of rising gas exports and slower production growth, John Kilduff, founding partner at Again Capital LLC in New York, said.

Gas futures climbed 4 percent to $2.935 per million Btu on the New York Mercantile Exchange during the commission’s report period. Prices rose to as high as $3.018 before retreating to settle at $2.893 on Friday.

Gas has been trading within a narrow trading range since June, torn between mild summer weather and rising exports. Kilduff said he expects prices to slump back toward a 2017 intraday low of $2.522 before bouncing back ahead of the peak winter demand season.

The short and long positions are Bloomberg calculations based on seven U.S. natural gas contracts, including futures and options, that are traded on the New York Mercantile Exchange and Intercontinental Exchange. The calculations are based on the standard contract size of 10,000 million British thermal units with smaller contracts adjusted to that equivalent.

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