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Record Short Bets on US Natural Gas
24 Oct
Summary
- Hedge funds hold record short positions in US natural gas.
- Mild winter forecasts point to anemic demand for furnace fuel.
- Benchmark US gas futures experienced a significant weekly decline.
Hedge funds have accumulated a record short position in US natural gas futures, signaling strong bearish sentiment. This strategy is driven by predictions of an unusually mild northern winter, which is expected to significantly reduce demand for natural gas used in furnaces and power plants.
The Commodity Futures Trading Commission reported that money managers' short-only exposure across seven benchmark Henry Hub contracts reached 599,731. This figure represents the largest short position recorded since May 2013. The net-short position on US gas futures climbed to 192,728, indicating the most bearish outlook in over six years, while bullish bets fell to a near two-year low.
Reflecting these expectations, benchmark US gas futures plummeted by over 15% last week, marking the largest weekly decline since February. Commodity Weather Group forecasts that December and January will be the third-warmest months on record since 1950. However, this heavy bearish positioning increases the risk of a short squeeze should a sudden cold snap occur, potentially causing prices to surge as traders rapidly close out their losing positions.
