(John Kemp is a Reuters market analyst. The views expressed are
* Chart 1: tmsnrt.rs/2nxfzE0
* Chart 2: tmsnrt.rs/2nZFHU1
* Chart 3: tmsnrt.rs/2ohYJYv
* Chart 4: tmsnrt.rs/2nZp5Mw
* Chart 5: tmsnrt.rs/2nxikoZ
* Chart 6: tmsnrt.rs/2nZNRfn
By John Kemp
LONDON, April 10 Hedge funds are more bullish
about U.S. natural gas prices than at any time for almost three
years, according to position records published by regulators and
By April 4, hedge funds and other money managers had amassed
a net long position in the two main futures and options
contracts linked to U.S. gas prices equivalent to 3,280 billion
cubic feet (tmsnrt.rs/2nxfzE0).
Fund managers had boosted their net long position for five
consecutive weeks by a total of 1,082 billion cubic feet, taking
it to the highest level since May 2014 (tmsnrt.rs/2nZFHU1).
Hedge fund long positions outnumbered short positions by a
ratio of nearly 3.6:1 on April 4, up from just 2.2 on Feb. 28,
and nearing the recent high of 4.2 on Jan. 17 (tmsnrt.rs/2ohYJYv).
Fund managers have responded to signs the gas market is
tightening, despite one of the warmest winters in the last 50
Strong exports and the continued weakness of gas output have
offset warm weather and reduced consumption from electric power
The United States exported a record 270 billion cubic feet
of gas in January, up from 169 billion cubic feet in the same
month a year earlier (tmsnrt.rs/2nZp5Mw).
Gas stocks finished winter at just 2,051 billion cubic feet,
which was 426 billion cubic feet, or 17 percent, lower than a
year earlier (tmsnrt.rs/2nxikoZ).
As a result, gas prices have risen to limit power producers’
consumption especially during the coming summer airconditioning
Futures prices for gas delivered at Henry Hub in June 2017
have risen to $3.31 per million British thermal units (BTUs), up
16 percent since Feb. 22.
Futures prices for deliveries in June 2017 are now trading
at a premium of 48 cents per million BTUs over June 2018 in an
effort to limit short term power burn (tmsnrt.rs/2nZNRfn).
There may be fundamental reasons for hedge funds’
bullishness towards gas but the concentration of long positions
has become a source of downside price risk in the short term.
Large concentrations of hedge fund positions on one side of
the market often presage a sharp retracement in prices when
managers attempt to unwind them and lock in profits.
Gas prices could be vulnerable to a correction if
temperatures across the main U.S. population centres remain mild
over the next 5-6 weeks, cutting gas consumption more than
According to the U.S. National Oceanic and Atmospheric
Administration, temperatures are forecast to be above normal
across most of the southern and eastern United States through
the next month.
Gas prices have risen to the point where power producers
have a strong incentive to reduce the number of hours they run
gas-fired units and increase run rates for coal-fired units.
If gas stocks rise rapidly during the remainder of April and
May there is a risk fund managers will begin to liquidate some
of their long positions and put prices under pressure.
U.S. natural gas prices rise to limit summer power burn,
Reuters, April 3
(Editing by Mark Potter)