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Naureen S. Malik
(c) 2013, Bloomberg News

Hedge funds got more bullish on natural gas as a blast of cold air swept across the United States, pushing prices to the highest level in more than two years.

Money managers increased net-long positions, or bets on rising prices, by 33 percent in the week ended Dec. 17, U.S. Commodity Futures Trading Commission data show. Bullish wagers advanced for a fourth week and to a six-month high.

Prices rose 21 percent during the four weeks as below- normal temperatures spread across the lower 48 states and a storm dumped as much as 18 inches of snow from the Midwest to the Northeast. U.S. inventories have fallen faster than the five-year norm since early November, government reports show.

"Wall Street has been throwing a lot of money at this market," said Stephen Schork, president of Schork Group Inc., a consulting group in Villanova, Penn. "It's been aided by some very cold December weather. The forecasts are calling for some cold during the remaining winter."

Natural gas rose 5 cents, or 1.2 percent, to $4.287 per million British thermal units on the New York Mercantile Exchange in the week covered by the report. Futures extended the rally to $4.492 on Dec. 20, the highest intraday price since July 21, 2011, before settling at $4.418.

The fuel gained 2.4 percent on Dec. 11, the first day of the report week, after the National Weather Services' Global Forecast System model showed a wide swath of below-normal temperatures across the U.S. through Dec. 25. Open interest for gas futures jumped to 1.335 million contracts, the most since Aug. 26, Nymex data show.

Prices gained 1.7 percent the next day after the Energy Information Administration reported gas inventories dropped 81 billion cubic feet in the week ended Dec. 6, more than the five- year average decline of 76 billion for the period. Forecasters, including Commodity Weather Group LLC in Bethesda, Maryland, predicted a blast of cold air in the East through Dec. 16, signaling a jump in demand.

The low in Chicago on Dec. 12 fell to minus 3 degrees Fahrenheit (minus 19 Celsius), 27 lower than average, according to AccuWeather Inc. in State College, Penn. New York City's reading dropped to 23 degrees, 10 below normal. About 49 percent of U.S. households use natural gas for heating, according to data from the EIA, the statistical arm of the Energy Department in Washington.

The cold helped pushed gas to $4.443 on Dec. 13, the highest intraday price since May 1, before an outlook for moderating weather pushed it 1.3 percent lower. WSI Corp. of Andover, Massachusetts, said below-normal temperatures through Dec. 17 would swing to average or higher readings the next week.

Prices slid 1.7 percent the next day as MDA Weather Services in Gaithersburg, Md., predicted unusually warm weather spreading across most of the East Coast from Dec. 21 through Dec. 25. The next day, weather forecasts showing a stronger cold front during the last week of December helped pull prices from the two-day slump, ending the day 0.2 percent higher.

Prices surged 4.9 percent on Dec. 19 after the EIA reported stockpiles fell by 285 billion cubic feet, the largest decline on record in data going back to 1994. Analyst estimates compiled by Bloomberg predicted a decline of 263 billion versus the five- year average drop of 133 billion.

"The bulls are coming out of the woodwork here," said Phil Flynn, senior market analyst at Price Futures Group in Chicago. "We hadn't really seen that in natural gas; people had been somewhat averse to the belief in higher prices because of the record production."

Gas output will increase 1.8 percent this year to a record 70.47 billion cubic feet a day, the sixth consecutive yearly gain, the EIA said in a Dec. 10 report. The U.S. met 86 percent of its energy needs in the first eight months of 2013, on pace to be the highest annual rate since 1986, on drilling technologies such as hydraulic fracturing, of fracking, in shale deposits such as the Marcellus in the Northeast.

Net-long bets on four natural gas contracts held by money managers rose by 90,360 futures equivalents to 361,428 in the week ended Dec. 17, according to the CFTC. Bearish bets slid by 31,066, while long positions advanced by 59,294.

The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, La., is the delivery point for Nymex futures, a benchmark price for the fuel.

Net-long positions in West Texas Intermediate oil held by money managers, including hedge funds, commodity pools and commodity-trading advisers, rose by 711 futures and options combined to 252,910.

WTI slid $1.29, or 1.3 percent, to $97.22 a barrel on the Nymex in the report week. Prices settled up 28 cents, or 0.3 percent, at $99.32 on Dec. 20.

Bullish bets on gasoline dropped by 3,760 futures and options combined, or 8.2 percent, to 41,985. Futures declined 3.57 cents, or 1.3 percent, to $2.6472 a gallon in the reporting period. The fuel advanced 4.3 cents, or 1.6 percent, to $2.7831 on Dec. 20.

Regular gasoline at the pump, averaged nationwide, rose to $3.222 a gallon on Dec. 19, the first increase in 12 days, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.

Money managers' bullish wagers on U.S. ultra low sulfur diesel decreased by 5,981 futures and options combined, or 23 percent, to 19,570. The fuel fell 5.44 cents, or 1.8 percent, to $2.9629 a gallon in the report week, and settled at $3.0781 a gallon on Dec. 20.

"Wall Street loves natural gas," Schork said. There is some profit taking and end-of-year book squaring taking place, but "once you get some more weather into the mix, we could start to see them come in again," he said.


— With assistance from Moming Zhou and Christine Buurma in New York.

 

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