Hedge funds raised bullish bets on natural gas for the first time since July as a shrinking U.S. supply glut and forecasts for unseasonably cold weather sent futures to a 10-month high.
Money managers boosted wagers on rising prices by the most since May 1, increasing net-long positions in four natural gas contracts by 82 percent in the seven days ended Oct. 2, according to the Commodity Futures Trading Commission’s Commitments of Traders report on Friday.
Natural gas surged 21 percent in the week covered by the report, the biggest jump since September 2009, as increased power-plant demand cut the inventory surplus to the lowest since November last year.
Electricity generators burned an average of 26.5 billion cubic feet of gas a day in September, up 16 percent from the same period a year earlier, data from LCI Energy Insight in El Paso, Texas, show.
“All of a sudden it’s starting to look bullish,” Phil Flynn, senior market analyst for Price Futures Group in Chicago, said by phone Friday. “It’s going to be colder than normal, and everyone is excited about it and getting long.”
Natural gas advanced 60.7 cents to $3.531 per million British thermal units on the New York Mercantile Exchange in the week covered by the report. It was the highest settlement since December. Futures dropped 3.8 cents, or 1.1 percent, to $3.358 at 11:27 a.m. today in New York.
The fuel rose 3.1 percent on Sept. 25, starting a six-day rally. Record output from gas fields including the Marcellus shale in the Northeast helped push prices to a decade-low of $1.902 in April, spurring power producers to cut coal use in favor of cheaper natural gas.
Natural gas jumped 3.4 percent on Sept. 26 on speculation that stockpiles won’t reach storage limits before utilities start withdrawing fuel to meet seasonal heating needs. U.S. peak working gas storage capacity was 4.239 trillion cubic feet as of April.
The Energy Department predicted in its monthly Short-Term Energy Outlook on Sept. 11 that inventories will rise to a record level of 3.95 trillion cubic feet by the end of October, exceeding the peak of 3.852 trillion reached Nov. 18.
Futures capped a second straight quarterly gain on Sept. 28 as forecasts called for colder-than-normal weather. Temperatures in the U.S. Northeast are expected to be about 5 degrees Fahrenheit (2.7 Celsius) below average from Oct. 10 to Oct. 14, Matt Rogers of the Commodity Weather Group LLC in Bethesda, Maryland, said in his Oct. 5 note to clients.
A cold front helped spur natural gas to a 10-month high of $3.531 on Oct. 2. New York will fall to 40 degrees Fahrenheit on Oct. 12, 11 lower than normal, and Chicago will touch 42 degrees, 5 below normal, according to AccuWeather Inc. in State College, Pennsylvania.
Futures rose 0.3 percent on Oct. 4 after the Energy Department reported that the supply surplus declined to 8.3 percent above the five-year average, the smallest since November. Inventories rose 77 billion cubic feet in the week ended Sept. 28 to 3.653 trillion.
“The market is optimistic and enthusiastic,” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said by phone Oct. 5. “But if there’s not a follow- through, we’re in for a correction by the end of the year.”
Net-long bets on four natural gas contracts rose by 62,646 futures equivalents to 138,823 in the week ended Oct. 2, CFTC data show.
The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
It will take a colder-than-normal winter to significantly reduce supplies before heating demand tapers off and inventories begin to expand in March and April, Viswanath said. Without strong demand, the fuel may fall below $3 next year, she said.
In other markets, net-long positions in West Texas Intermediate crude held by money managers, including hedge funds, commodity pools and commodity trading advisers, retreated by 11,590 futures and options combined, or 6.5 percent, to 166,172.
WTI rose 52 cents a barrel, or 0.6 percent, to $91.89 on the Nymex in the week covered by the report. Futures capped a third weekly drop, settling at $89.88 in New York on Friday on concern the market may be oversupplied. The contract fell 0.5 percent to $89.42 by mid-morning today.
U.S. crude production rose to 6.52 million barrels a day in the week ended Sept. 28, the highest level since 1996, according to an Oct. 3 Energy Department report. The boom in oil and gas output helped America meet 83 percent of its energy demand in the first six months of this year, on track to be the highest since 1991.
Money managers increased bullish bets on higher U.S. gasoline prices for a ninth straight week, adding 3,669 futures and options combined, or 4.5 percent, to 84,527. It was the most since April 17. Gasoline declined 9.79 cents to $2.8692 a gallon on the Nymex in the report week. Futures fell to $2.9385 today.
Speculators raised bullish bets on Brent crude in the week to Oct. 2 by the most since August, according to data from ICE Futures Europe.
Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 113,549 lots, the London-based exchange said today in its weekly Commitment of Traders report. That’s up by 6,422, or 6 percent, from 107,217 last week, the highest level since Sept. 11 and the biggest increase since Aug. 21, the data showed.
Regular gasoline at the pump, averaged nationwide, rose to $3.818 yesterday, according to data Heathrow, Florida-based AAA, the largest U.S. motoring group, posted on its website. Prices in California rose to a record $4.668, according to AAA.
Money managers increased bets on U.S. heating oil by 3,196 futures and options combined, or 14 percent, to 26,095, the CFTC report showed. It was the highest since May 8.