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Hedge Funds Net Short Positions in Natural Gas Futures, Options Rise

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Jul. 18 2016, Updated 3:05 p.m. ET

Hedge funds 

The CFTC (U.S. Commodity Futures Trading Commission) is scheduled to release its weekly Commitments of Traders report on July 15, 2016.

Hedge funds and money managers increased their net short positions on US natural gas futures and options contracts by 1,996 contracts to 31,276 contracts in the week ended July 5, 2016, compared to the previous week.

Money managers increased their net short positions on natural gas futures and options contracts for the first time in the last six weeks ended July 5, 2016. The data for July 12 is scheduled to be released on July 15.

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Hedge funds increased their net short positions due to uncertainty over the summer weather forecast. For more on weather, please read the first part of this series. Consequently, hedge funds could increase their net short positions for the coming weeks. Hedge funds’ net short positions hit their lowest level since June 2015 at 56,000 in the week ended April 19, 2016.

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.

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Open interest

The CFTC added that open interest for NYMEX natural gas futures and options contracts fell in the week ended July 5, 2016, compared to the previous week. It fell by 2,749 contracts to 1,092,326 in the same period.

US natural gas futures and options contracts open interest peaked at 1,187,000 contracts in the week ended April 26, 2016, which is the highest level since June 2015.

Impact on energy companies and ETFs

The roller coaster ride in natural gas prices impacts oil and gas producers such as Exco Resources (XCO), Gulfport Energy (GPOR), and Rex Energy (REXX).

They also impact ETFs and ETNs such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the Guggenheim S&P 500 Equal Weight Energy ETF (RYE), and the SPDR S&P Oil & Gas Equipment & Services ETF (XES).

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

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