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Will Weather Impact Hedge Funds’ Net Short Positions?

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Hedge funds 

The CFTC (U.S. Commodity Futures Trading Commission) reported in its weekly “Commitments of Traders” that hedge funds decreased their net short positions by 13,202 contracts to 43,152 contracts for the week ending June 14 compared to the previous week.

Hedge funds (or speculators) reduced their net short positions due to the hotter-than-normal summer weather forecast for the third consecutive week. For more on the weather forecast, read Part 1 in this series. Consequently, hedge funds might reduce their short positions in the coming weeks.Hedge funds’ net short positions had hit their lowest level since June 2015 at 55,834 in the week ending April 19, 2016.

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Commercial and non-commercial traders 

The CFTC divides traders into two categories—commercial and non-commercial. Natural gas producers and consumers are commercial traders. Hedge funds are non-commercial traders. Commercial traders use the futures and options markets for hedging activity to offset natural gas price volatility.

Open interest

The CFTC reported that open interest for US natural gas futures and options contracts rose for the week ending June 14, 2016, compared with the previous week. It rose by 29,251 contracts to 1,106,621 for the same period. NYMEX-traded natural gas futures and options contracts open interest peaked at 1,187,163 contracts for the week ending April 26, 2016, since June 2015.

Impact on energy companies and ETFs

The ups and down in natural gas prices impact oil and gas exploration and production companies’ margins—like Memorial Production (MEMP), Gulfport Energy (GPOR), Cabot Oil & Gas (COG), and Rex Energy (REXX).

They also impact ETFs and ETNs like the VelocityShares 3x Inverse Natural Gas ETN (DGAZ) and the SPDR S&P Oil & Gas Equipment & Services ETF (XES).

In the next part of this series, we’ll cover production data.

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