Nov. 7 (Bloomberg) — Hedge funds raised bearish bets on natural gas to the highest level in five weeks as increased output sent stockpiles toward a record.
The funds and other large speculators more than doubled wagers on falling prices in the week ended Nov. 1, according to data from the Commodity Futures Trading Commission’s Commitments of Traders report. The total was the highest since the week ended Sept. 27.
Gas inventories may reach 3.875 trillion cubic feet by mid- November, surpassing last year’s record of 3.84 trillion, Deutsche Bank AG said in a Nov. 4 note to clients. Production from the lower 48 states rose 4 percent this year through August on increased output from shale deposits in Louisiana and the Northeast, the Energy Department said Oct. 28.
“The production statistics have all continued to show sharp growth,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “Gas prices have languished on the perception of oversupply in the market.”
Gas for December delivery fell 7.1 cents, or 1.8 percent, to $3.781 per million British thermal units in the week covered by the report. Prices slid 8.7 cents, or 2.3 percent, to settle at $3.696 per million Btu today on the New York Mercantile Exchange. The futures have declined 16 percent this year.
Stockpiles increased 78 billion cubic feet to 3.794 trillion cubic feet in the week ended Oct. 28, 5.6 percent above the five-year average for that time of year, the Energy Department said Nov. 3. Supplies were down 0.5 percent from a year earlier.
‘Lack of Demand’
Utilities and storage companies fill reserve sites during warm-weather months to have enough for peak demand in January and February.
Lack of demand is “the biggest problem that natural gas faces in the U.S.,” Adam Sieminski, chief energy economist at Deutsche Bank in Washington, said in the Nov. 4 research note. A colder-than-normal winter or increase in industrial demand will be needed to send stockpiles below 2 trillion cubic feet by late March, he said.
The coming U.S. winter may be the coldest in more than 10 years, Commodity Weather Group LLC in Bethesda, Maryland, said in its seasonal forecast on Oct. 24.
Supplies fell to 1.579 trillion cubic feet on April 1, the lowest end-of-winter level since 2008, as below-normal temperatures boosted demand, Energy Department data show.
About 27 percent of demand comes from industry, including factories, manufacturers and chemical plants, department data show. Residential heating accounts for another 20 percent.
Gas Production
Production from the lower 48 states rose 0.1 percent in August to 69.66 billion cubic feet a day as output from the Haynesville Shale in Louisiana and the Marcellus Shale in the Northeast increased, the department said Oct. 28 in its monthly EIA-914 report. Production was the highest in department data going back to 2005.
“We have enough supply that it’s keeping prices from moving higher,” said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Connecticut. “There are a lot of bearish pressures on the market.”
Bank of America Corp. last week cut its average 2012 U.S. forecast to $4.30 per million Btu from $4.70, citing rising supply.
“In the absence of a very cold winter, we expect natural gas prices to stay low in coming months because of record- setting production, high storage levels and a weak demand picture,” Francisco Blanch, head of commodities research at BofA Merrill Lynch in New York, said in a note to clients dated Nov. 1.
Barclays Forecast
Barclays Capital lowered its 2012 outlook to $3.80 per million Btu from $4.55, analysts Shiyang Wang and Michael Zenker in New York said in a Nov. 1 note to clients. U.S. production may grow by 2.2 percent in 2012 and 2.3 percent in 2013, when futures will average $3.70, according to the report.
Net-short positions, or bets on falling prices, in natural gas held by managed money, including hedge funds, commodity pools and commodity-trading advisers, in futures and options combined in four contracts rose by 16,008 futures equivalents to 28,160 in the week ended Nov. 1, the CFTC data showed. Such traders have been bearish since week ended Oct. 11.
Gas Contracts
The measure of net shorts includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swaps, Nymex Henry Hub Penultimate Swaps and ICE Henry Hub Swaps. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
In other markets, net-long positions in crude oil slipped 3.6 percent to 190,216, according to the CFTC report. Crude for December delivery fell the most in three weeks on Oct. 26 after a government report showed a larger-than-projected gain in stockpiles amid concern that European debt-crisis talks are stalling.
Net-long bets on heating oil gained 13 percent to 38,513 contracts, and long bets on gasoline prices slid 2.4 percent to 59,971 futures and options combined, the data showed.
–Editors: Bill Banker, David Marino
To contact the reporter on this story: Christine Buurma in New York at cbuurma1@bloomberg.net
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net
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