Hedge funds boost natural gas after losing bets

Hedge funds raised bullish bets on natural gas for the first week in six, reversing wagers on falling prices for the power-plant fuel, as a heat wave swept across much of the U.S.

The funds and other large speculators increased so-called net-long positions on rising prices 45 percent in the week ended July 19, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. Gas for August delivery gained 4.6 percent on the New York Mercantile Exchange in the period covered by the CFTC data.

Weather conditions that drove temperatures in the Midwest and East above 100 degrees Fahrenheit (38 degrees Celsius) last week will last through the month, according to Matt Rogers, a forecaster for Commodity Weather Group LLC in Bethesda, Maryland. Traders didn’t anticipate the heat. In the six weeks ended July 12, speculators increased short positions, bets on falling prices, 70 percent to 296,588 futures and options.

“The shorts were caught leaning the wrong way and they had to urgently buy,” said Peter Beutel, president of trading advisory company Cameron Hanover Inc. in New Canaan, Connecticut. “They needed to get out. They were panicking and scared.”

Natural gas advanced 8.1 percent in the week ended July 15, the biggest increase since Nov. 19. The futures fell 3.2 percent last week to $4.399 per million British thermal units. A stockpile gain the previous week reported July 21 met analyst expectations despite the extreme heat, sending gas lower.

Eastern Weather

Weather had been cooler than normal in the East in early July, prompting a decline in prices to $4.133 on July 7, the lowest since May 19. Gas has since climbed 5.9 percent, heading for the first monthly gain since April. Futures fell 2.3 cents, or 0.5 percent, to $4.376 at 1:38 p.m. in New York.

The high in New York was 95 degrees on July 18, 10 degrees above normal, according to AccuWeather Inc. in State College, Pennsylvania. Chicago had a high of 95 on July 17, also 10 degrees above normal, according to AccuWeather.

Temperatures reached 104 degrees in New York City on July 22, the highest level for the date, the National Weather Service said. Newark, New Jersey, set an all-time high of 108 degrees.

Electricity demand rose to a record 13,189 megawatts at 4 p.m., breaking the earlier record of 13,141 megawatts set in August 2006, according to Consolidated Edison Inc., the owner of New York City’s utility.

PJM Record

PJM Interconnection, operator of the power grid in Washington and 13 states including New Jersey and Illinois, reported a record 158,450 megawatts for peak power use at 5 p.m. on July 21. One megawatt is enough to power about 1,000 homes.

Gas stockpiles were 2.2 percent below the five-year average in the week ended July 15 as inventories increased 60 billion cubic feet to 2.671 trillion, according to the Energy Department. The five-year average storage change for the period is a rise of 67 billion. Analysts had expected 60 billion.

Scheduled gas shipments for U.S. electricity generation increased to 22.3 million dekatherms (22 billion cubic feet) on July 12, the highest since Aug. 12, 2010, according to data compiled by Bloomberg. Shipments increased to a record 24.9 million dekatherms on July 21, data going back to 2005 shows.

Power plants use about 30 percent of the nation’s gas supplies, according to the Energy Department.

So-called net-long positions held by managed money, including hedge funds, commodity pools and commodity-trading advisers, in futures and options combined in four natural-gas contracts rose by 28,569 futures equivalents to 92,208.

Gas Shorts

Short positions fell by 24,828 futures equivalents while long positions gained 3,742, according to the CFTC data.

The measure of gas positions 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, net-long bets on heating oil advanced by 9.3 percent to 44,430 futures and options combined in the week ended July 15, the CFTC data showed. Bullish, or long, bets on gasoline prices advanced by 7.3 percent to 61,994 futures and options combined.

Net-long positions in crude oil advanced 8 percent to 182,285. Crude for August delivery gained 74 cents, or 0.8 percent, to $99.87 a barrel in New York on July 22.

On London’s ICE Futures Europe exchange, hedge-funds and other money managers raised bullish bets on Brent crude by 11 percent in the week ended July 19, according to bourse data.

Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 91,162 contracts, the London-based exchange said in its weekly Commitment of Traders report. Net-long positions rose by 9,377 contracts, from 81,785 a week earlier.