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Hedge Funds’ Net Long Positions in US Natural Gas Are Low

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Hedge funds net positions in natural gas 

On November 18, 2016, the CFTC (U.S. Commodity Futures Trading Commission) will release its weekly “Commitment of Traders” report for the week ending November 15, 2016.

On November 14, 2016, it reported that hedge funds decreased their net long positions in US natural gas futures and options contracts to a nine-week low for the week ending November 8, 2016. Hedge funds’ bullish positions fell due to warm weather, the bearish natural gas inventory report, and Donald Trump’s surprise victory. Read How Could Donald Trump Impact the US Energy Market? to learn more.

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Hedge funds decreased their net long positions in US natural gas futures and options contracts by 33,680 contracts to 39,272 contracts for the week ending November 8, 2016—compared to the previous week. The net long positions hit 147,447 for the week ending October 18, 2016—the highest level so far in 2016.

Commercial and non-commercial traders 

The CFTC divides traders into two categories—commercial and non-commercial. Natural gas producers and consumers are considered commercial traders, while hedge funds are considered non-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 in natural gas 

On November 14, 2016, the CFTC reported that open interest in US natural gas futures and options contracts rose for the fourth time in the last five weeks in the week ending November 8, 2016. The open interest rose by 28,254 contracts to 1,207,112 during the week. The open interest hit 1,213,639 for the week ending October 18, 2016—it was the highest level since June 2015.

Impact on energy companies and ETFs 

Hedge funds’ bullishness or bearishness on natural gas prices could impact prices. For more on natural gas prices, read Part 1 of this series.

Volatility in natural gas and crude oil prices can impact oil and gas producers’ profitability such as Gulfport Energy (GPOR), Cabot Oil & Gas (COG), and Newfield Exploration (NFX).

The ups and downs in crude oil and natural gas prices can also impact ETFs and ETNs such as the VelocityShares 3x Inverse Natural Gas ETN (DGAZ), the United States Oil ETF (USO), 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).

Read Why Did Hedge Funds’ Bullish Position in US Crude Oil Fall? for details on hedge funds’ positions in US crude oil futures and options.

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

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