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Hedge Funds Increased Net Long Positions in US Natural Gas Again

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Hedge funds’ net positions in natural gas

On October 21, 2016, the CFTC (U.S. Commodity Futures Trading Commission) is releasing its weekly Commitment of Traders report for the week ended October 18, 2016.

On October 14, 2016, the CFTC reported that hedge funds increased their net long positions in US natural gas futures and options contracts for the third time in the last five weeks for the week ended October 11, 2016. Hedge funds increased their net long positions in US natural gas futures and options contracts by 22,789 contracts to 122,187 contracts from October 4–11, 2016.

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Commercial and noncommercial traders

The CFTC divides traders into two categories: commercial and noncommercial. Natural gas producers and consumers are considered commercial traders, while hedge funds are considered noncommercial traders. Commercial traders use the futures and options markets for hedging activity to offset natural gas price volatility.

Open interest in natural gas

On October 14, 2016, the CFTC reported that open interest in US natural gas futures and options contracts rose for the fourth time in the last six weeks in the week ended October 11, 2016. Open interest rose by 39,638 contracts to 1,161,522 from October 4–11, 2016.

Open interest for US natural gas futures and options contracts peaked at 1,187,000 contracts in the week ended April 19, 2016, the highest level since June 2015.

Impact on energy companies and ETFs

Hedge funds’ bullishness or bearishness on natural gas prices could impact natural gas prices. For more on natural gas prices, read Part 1 of this series. Volatility in natural gas and crude oil prices impacts the profitability of oil and gas producers such as EXCO Resources (XCO), Memorial Resource Development (MRD), and Antero Resources (AR).

Crude oil and natural gas prices also impact ETFs and ETNs such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the PowerShares DWA Energy Momentum ETF (PXI), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the VelocityShares 3x Long Crude Oil ETN (UWTI), and the First Trust ISE-Revere Natural Gas ETF (FCG).

For details on hedge fund positions in US crude oil futures and options, read Hedge Fund Positions in Crude Contracts Are Highest since May 2015.

In the next and final part of this series, we’ll look at some natural gas price forecasts.

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