Hedge Funds Almost Double Bullish Gas Bets on Cold Snap: Energy Markets
Asjylyn Loder, On Monday January 10, 2011, 4:06 am EST
Hedge funds almost doubled bets on gains in natural gas as futures climbed to the highest level since August on forecasts for colder-than-normal weather.
The funds and other large speculators raised their net-long positions, or wagers on rising prices, in four gas contracts by 94 percent in the seven days ended Jan. 4, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the biggest increase in records dating to January 2010.
Natural gas climbed for seven straight days through Jan. 4, the longest advance since March 2008, as weather forecasters predicted a cold snap across the U.S. About 52 percent of the nation’s households use natural gas for heating, according to the Energy Department in Washington.
“Will the cold persist through the balance of the season? If it does, the floor has risen for natural gas,” said Teri Viswanath, director of commodities research at Credit Suisse Securities USA in Houston.
Natural gas jumped 14 percent from Dec. 23 to Jan. 4, when it reached $4.669 per million British thermal units on the New York Mercantile Exchange, the highest settlement since Aug. 4. The February-delivery contract was little changed at $4.425 a million British thermal units as of 9 a.m. in London today.
Higher Demand
Heating demand will be higher than normal across the U.S. through Jan. 14, David Salmon, a meteorologist with Weather Derivatives in Belton, Missouri, said in a Jan. 7 report.
Increased consumption may cut U.S. inventories to 1.69 trillion cubic feet at the end of the winter season on March 31, according to Viswanath. The Energy Department said in its Short- Term Energy Outlook on Dec. 7 stockpiles may be 1.833 trillion cubic feet by then, about 171 billion higher than last year,
Gas output this year will be 0.1 percent below 2010, according to the Energy Department. Total U.S. marketed gas production in October was 1.945 trillion cubic feet, the highest level since 1973.
Stockpiles fell 135 billion cubic feet to 3.097 trillion in the week ended Dec. 31, the Energy Department said. Analysts predicted a drop of 131 billion cubic feet. The decline left inventories 6.5 percent above than the five-year average, the smallest surplus since September and down from 8.2 percent.
The lowest temperature in Minneapolis on Jan. 11 may be zero degrees Fahrenheit (minus 18 Celsius), 4 degrees below normal, according to State College, Pennsylvania-based AccuWeather Inc. It may drop to 5 degrees, 6 below normal, in Des Moines, Iowa.
“Two really large gas-storage withdrawal weeks are at hand as heating needs surge,” Salmon said.
Conflicting Models
While some weather models signal a warmer-than-average February due to the effect of La Nina, others indicate the emergence of “blocking patterns” that will keep cold air in the U.S.
La Nina, characterized by a cooling of temperatures in the tropical Pacific Ocean, occurs on average every three to five years and can last nine to 12 months, according to the U.S. National Oceanic and Atmospheric Administration. The event is associated with warmer-than-normal winters in parts of the U.S.
If the blocking patterns hold, higher heating demand will combine with falling production to erode stockpiles, driving prices higher, Viswanath said.
The number of natural-gas rigs operating in the U.S. declined for a fifth week to 914, the lowest level since Feb. 26, according to data published by Baker Hughes Inc. on Jan. 7. Rigs increased 21 percent last year.
Managed Money
Net-long positions in natural gas held by managed money, including hedge funds, commodity pools and commodity-trading advisers, in futures and options combined in four contracts increased by about 66,269 futures equivalents to about 136,942 in the week ended Jan. 4, the CFTC data showed.
The measure of net longs 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.
In other markets, bullish, or long, bets on gasoline rose 3.3 percent to 69,418 futures and options combined, the CFTC said. Net-long bets on heating oil climbed 3.2 percent to 37,261, while those in crude oil fell 14 percent to 187,408, the data showed.