Investors Turn Bearish on European Natural Gas Amid Eased Supply Fears

Ample inventories and muted demand so far this winter heating season have turned portfolio managers bearish on European natural gas for the first time since September and benchmark prices are now down to a four-month low.

At the end of last week, hedge funds and other money managers held a net short position in the Dutch TTF Natural Gas Futures, the benchmark for Europe’s gas trading, according to data from exchanges released on Wednesday and reported by Bloomberg.

High inventories, eased fears of supply shortages, weak demand, and increased confidence that Europe could go through the winter without major supply disruptions have all led to a drop in Europe’s natural gas prices in the past two weeks. The winter premiums in the futures and options market have all but vanished in recent days.

The front-month Dutch TTF Natural Gas Futures traded up by 1.9% to $38.15 (35.36 euros) per megawatt-hour (MWh) as of 12:13 p.m. GMT on Wednesday, down from highs of over $54 (50 euros) per MWh back in October, when the market was gripped by fears about Middle Eastern gas supply and prolonged maintenance at Norwegian gas fields.

This week, prices slumped on Monday due to the mild weather and higher wind power generation, which reduced demand for natural gas for heating and power generation.

The Dutch TTF contract has broken below its 200-day displaced moving average (DMA), Ole Hansen, Head of Commodity Strategy at Saxo Bank, commented on Monday.

“Inventory levels remain seasonal high, and each passing day without a significant boost to demand will add further downward pressure on the price,” Hansen added.

EU storage was 90.4% full as of December 11, according to data from Gas Infrastructure Europe.

“Only a combination of multiple supply risks or extended cold weather periods have the potential to test the resilience of the European winter energy outlook,” Andy Sommer, team leader for fundamental analysis and modeling at Swiss trader Axpo Solutions, said in a note carried by Bloomberg.   

By Tsvetana Paraskova for Oilprice.com

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