(Bloomberg) — Hedge funds this week amassed the largest-ever short position on US natural gas on expectations that an unusually warm winter will slash demand for the furnace and power-plant fuel.
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Money managers boosted their short-only exposure, or bets on prices falling, across seven benchmark Henry Hub contracts to 625,150, according to Commodity Futures Trading Commission data released Friday. That’s the largest in data going back to May 2013, breaking the most recent short-only record which was set just a week earlier.
The net-short position on US gas rose to 223,591, the most bearish overall position since February 2020, when the outbreak of Covid-19 crushed demand for fuels and throttled markets across asset classes. The all-time largest net-short position, set in February 2020, was 266,416.
Benchmark US gas futures for delivery in December, which is currently the front-month, plummeted 18% to $2.898 per million British thermal units over the past three weeks as weather forecasts continued to shift warmer. Above-normal temperatures are now expected across the northern US for the first two weeks of November, according to the private forecaster Commodity Weather Group. The north is where most US heating demand is concentrated.
The bearish bets reflect traders’ growing conviction that the so-called Super El Niño weather pattern will bring very mild weather. They also increase the risk of a short squeeze. Any sudden, severe cold snap can send gas demand surging while slashing production, lifting prices as traders scramble to rapidly close out short positions to forestall losses.
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