(Repeats with no changes to text. John Kemp is a Reuters market
analyst. The views expressed are his own.)
* Chart 1: tmsnrt.rs/2rRAYZa
* Chart 2: tmsnrt.rs/2sTeDch
* Chart 3: tmsnrt.rs/2rmwMwV
* Chart 4: tmsnrt.rs/2rRvNIz
* Chart 5: tmsnrt.rs/2rmq3mx
By John Kemp
LONDON, June 12 Hedge funds have turned much
more bearish towards U.S. natural gas prices after stocks built
much more than expected at the start of the summer cooling
Hedge funds and other money managers cut their net long
position in the two main futures and options contracts linked to
Henry Hub prices by 765 billion cubic feet in the week to June
Fund managers cut their net long position by a total of
1,349 billion cubic feet over the two weeks since May 23, after
boosting positions by 1,721 billion cubic feet over the previous
12 weeks (tmsnrt.rs/2rRAYZa).
By May 23, hedge funds had accumulated a near-record net
long position of 3,919 billion cubic feet, according to the U.S.
Commodity Futures Trading Commission (tmsnrt.rs/2sTeDch).
Fund managers had the biggest bullish bias on record, with
more than five long positions for every short position (tmsnrt.rs/2rmwMwV).
But the concentration of hedge fund long positions left
prices looking stretched and vulnerable to a correction.
Fund managers gambled that strong exports coupled with a new
wave of combined-cycle power plants would tighten gas stocks
But instead stocks have risen in line with the normal
seasonal pattern as power producers have switched back to
With ample stocks, the bullish bias among the hedge fund
managers was no longer sustainable and a correction became
Spot prices and calendar spreads peaked in the middle of
May, and started to soften gradually, before tumbling after May
Gentle liquidation of long positions by former hedge fund
bulls has been accelerated by a new wave of short selling from
hedge fund bears anticipating a price correction.
Hedge fund long positions were reduced by 453 billion cubic
feet over the two weeks ending on June 6, but fund managers also
established 896 billion cubic feet of new short positions.
Gas prices have fallen sharply to encourage electricity
generators to run their gas-fired power plants for more hours
and ease back on coal burning.
Nearly all the decline in prices has been concentrated in
near-dated futures contracts to encourage maximum power burn
The price of gas for delivery at Henry Hub in July 2017 has
fallen by more than 40 cents per million British thermal units,
around 12 percent, since May 22 (tmsnrt.rs/2rRvNIz).
By contrast, there has been little change in forward prices,
with the price of gas for delivered in July 2018 down by just 2
cents since May 22.
Calendar spreads have collapsed, with the backwardation from
July 2017 to July 2018 easing from 47 cents on May 22 to just 9
cents on June 12 (tmsnrt.rs/2rmq3mx).
The sharp reduction in hedge fund long positions and
establishment of a significant number of new short ones has left
the risks around gas prices looking much more balanced.
Gas prices are now much more competitive with coal, which
should encourage power producers to run their combined-cycle
units for more hours as baseload and limit further downside
“U.S. natural gas prices tumble as power producers switch
back to coal”, Reuters, June 5
“U.S. natural gas prices soften, market eyes big hedge fund
longs”, Reuters, April 24
“U.S. natural gas prices rise to limit summer power burn”,
Reuters, March 31
(Editing by Edmund Blair)