Hedge Funds Ditch Long Positions On U.S. Natural Gas

Leading into the summer, natural gas builds in the United States have caused hedge fund analysts to turn bearish on the fuel’s prices, according to a new report by Reuters.

Deep-pocketed funds downsized their long positions by 1,349 billion cubic feet since May 23rd, after the same players increased their investments by 1,721 billion cubic feet in the 12 weeks prior.

The bullish attitude on natural gas prices was summarized by the U.S. Commodity Trading Commission’s May 23rd report that hedge funds held a near-record long position of 3,919 billion cubic feet.

The density of long positions on natural gas paved the way for a correction, which led to their sale over the past couple of weeks. Short positions are now en vogue.

American shale gas production is reaching new heights, even as inventories rise. The two biggest shale gas basins in the U.S. – the Marcellus and the Permian – have been pumping record amounts of power plant-ready fuel. The new supplies from Pennsylvania and Texas extend the domestic gas supply glut, depressing national prices as fuel from the two markets compete for the same customers.

Related: Record Breaking U.S. Exports Could Hurt Oil Markets

The U.S. Energy Information Administration’s forecast for next month predicted a 0.5 percent increase in productivity at Marcellus in July. The Permian’s output will climb 1.9 percent next month, the report added.

Oil inventories in the U.S. have also been historically high in recent weeks, which has blocked the effects of the Organization of Petroleum Exporting Countries’ (OPEC) efforts to increase barrel prices. Saudi Arabia, the bloc’s de facto leader, cut exports to the U.S. late last month to force inventories to drop, but Iraqi suppliers filled the gap in the days that followed.

By Zainab Calcuttawala for Oilprice.com

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