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Hedge Funds Increase Net Short Positions in US Natural Gas Contracts

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Aug. 1 2016, Updated 12:04 p.m. ET

Hedge funds

The CFTC (U.S. Commodity Futures Trading Commission) released its weekly Commitments of Traders report on July 29, 2016. It had reported that hedge funds increased their net short positions in US natural gas futures and options contracts by 10,515 contracts to 42,130 contracts from July 12–19, 2016.

Hedge funds increased their net short positions in natural gas futures and options contracts for the third time in the last eight weeks ended July 19, 2016. The data for July 26 was released on July 29.

Hedge funds’ net short positions hit their lowest level since June 2015 at 56,000 in the week ended April 19, 2016.

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Commercial and non-commercial traders

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

Open interest 

The CFTC added that open interest in US natural gas futures and options contracts fell for the fourth consecutive week in the week ended July 19, 2016. Open interest fell by 15,607 contracts to 1,044,005 from July 12–19, 2016. It’s the lowest level since February 2016.

US natural gas futures and options contracts’ open interest peaked at 1,187,000 contracts in the week ending April 26, 2016. This was the highest level since June 2015.

Impact on energy companies and ETFs

The ups and down in crude oil and natural gas prices impacts the profitability of oil and gas producers such as WPX Energy (WPX), Antero Resources (AR), and Memorial Resources (MRD).

It also affects ETFs and ETNs such as the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), the PowerShares DWA Energy Momentum ETF (PXI), and the SPDR S&P Oil & Gas Equipment & Services ETF (XES).

Please read the final part of this series for some natural gas price forecasts.

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