LONDON: Portfolio investors have become more bearish about the outlook for U.S. natural gas prices than at any time since the first wave of COVID-19 took hold in March 2020.

Bearish positions betting on a further decline in prices accumulated even though prices were already at the lowest level in real terms since futures started trading in 1990.

Hedge funds and other money managers sold the equivalent of 391 billion cubic feet (bcf) in the two major futures and options contracts linked to gas delivered at Henry Hub over the seven days ending on Feb. 13.

Fund managers have sold gas in each of four most recent weeks, reducing their combined position by 1,687 bcf since Jan. 16, according to records filed with the U.S. Commodity Futures Trading Commission.

Funds held a net short position equivalent to 1,276 bcf (5th percentile for all weeks since 2010) down from a net long position of 410 bcf (42nd percentile) four weeks earlier.

Chartbook: Gas and oil positions

From a positioning perspective, the balance of risks must be to the upside, with prices already at record lows in real terms and so many short positions at risk of being squeezed if and when prices start to rise.

But portfolio investors have tried (and failed) three times already in the last 12 months to identify the turning point, causing a temporarily rise then retreat in prices.

Hedge funds and other managers purchased futures and options between February and July 2023 (+1,943 bcf), then again in September-October 2023 (+1,216 bcf) and between December 2023 and January 2024 (+1,409 bcf).

Each time they have been beaten back by the continued rise in stocks and a further slide in prices.

In the most recent instance, prices have tumbled in response to exceptionally mild temperatures linked to strong El Niño conditions in the Pacific that has suppressed gas consumption through most of winter 2023/24.

Gas inventories are well above the seasonal average throughout North America and Europe and the surplus in both regions has continued to swell.

Until there is clear evidence the surplus is starting to erode, fund managers trying to get bullish need the ability to withstand big margin calls as well as strong convictions.


Investors became more bullish about petroleum over the seven days ending on Feb. 13, after wavering the week before.

Hedge funds and other money managers purchased the equivalent of 89 million barrels in the six major petroleum futures and options contracts, reversing sales of 86 million barrels the previous week.

Funds were buyers across the board in Brent (+38 million barrels), NYMEX and ICE WTI (+25 million), European gas oil (+11 million), U.S. diesel (+10 million) and U.S. gasoline (+5 million).

The combined position across all six contracts was boosted to 505 million barrels (36th percentile for all weeks since 2013) up from just 207 million barrels (1st percentile) on Dec. 12.

Fund managers remained unenthusiastic about futures and options linked to WTI, with a net position of just 80 million barrels (5th percentile) which had barely risen from 68 million in mid-December.

Persistent output growth from U.S. shale producers and the prolonged disruption of the BP refinery at Whiting in Indiana continued to weigh on sentiment.

But positions were far more bullish in Brent (62nd percentile), U.S. gasoline (67th percentile), European gas oil (67th percentile) and U.S. diesel (71st percentile).

Fuel inventories remain below the ten-year seasonal average across North America and Europe while attacks on shipping in the Red Sea and Gulf of Aden are still disrupting east-west crude and fuel trade.

Manufacturing and freight recessions appear near an end (closer in North America than Europe) while traders anticipate central banks will stimulate growth by cutting interest rates.

Crude prices are close to the long-term inflation-adjusted average while the business cycle and consumption are more likely to surprise on the upside, underpinning moderately bullish sentiment for everything other than WTI.

Related columns:

- El Niño pushes real U.S. gas prices to multi-decade low (February 16, 2024)

- Investors dump oil after U.S. refinery shutdown (February 12, 2024)

- Oil investors try to get bullish as global economy improves (February 5, 2024)

John Kemp is a Reuters market analyst. The views expressed are his own. Follow his commentary on X (Editing by Barbara Lewis)