Funds reduced bullish wagers on natural gas to the lowest level in more than nine months as U.S. shale production surges to an all-time high.
Speculators lowered their net-long position across four benchmark contracts by 12% in the week ended Sept. 9, the third consecutive drop, U.S. Commodity Futures Trading Commission data show. Short positions, or bets on falling prices, increased to the most since December.
Goldman Sachs Group Inc. and Barclays Plc cut their gas price forecasts for the fourth quarter and next year as the jump in shale production outpaces government estimates. Output from the Marcellus in the eastern U.S. is forecast to top 16 billion cubic feet a day for the first time in October. Futures gained 2.4% in the week of the report before tumbling 3.2% through Sept. 12.
“Last week we had another failed rally because we continue to get weekly verification that we have ample supply.” Teri Viswanath, director of commodities strategy at BNP Paribas SA in New York, said in a Sept. 12 telephone interview. “As the industry transitions into the heating season we experienced a bit of premature buying.”
Natural gas (NYMEX:NGV14) advanced 9.4 cents to $3.984 per million British thermal units on the New York Mercantile Exchange through Sept. 9 and settled at $3.857 on Sept. 12. The futures rose 7.1 cents, or 1.8%, to $3.928 at 8:51 a.m. today.
Gas stockpiles expanded by 1.979 trillion cubic feet from an 11-year low in March to 2.801 trillion on Sept. 5, the quickest pace in Energy Information Administration data going back to 1994. Supplies that rose faster than the five-year average for 21 consecutive weeks cut a deficit to the average to 14% from a record gap of 55%.
The EIA sees supplies rising to 3.477 trillion by the end of October as new wells come online at shale deposits, such as the Marcellus in the Northeast, according to its Sept. 9 Short- Term Energy Outlook. Marketed output will jump 5.3% this year to 73.93 billion cubic feet a day, up from 73.89 billion in the previous month’s estimate and reaching a record for the fourth straight year.
Goldman Sachs cut its gas price forecast for the fourth quarter and for 2015 to $4 per million Btu from $4.25, Daniel Quigley, a London-based analyst with the bank, said in a Sept. 12 note to clients. Barclays reduced its outlook for the fourth quarter to $3.95 from $4.50 and for 2015 to $4.01 from $4.24, Christopher Louney, an analyst with the bank in New York, said in a Sept. 12 report.
Forecasts for colder air sweeping the Midwest turned milder for mid-September, signaling some weaker overnight heating demand, according to Commodity Weather Group LLC. Readings will return to seasonal norms or higher across most of the lower 48 states from Sept. 16 through Sept. 25.
Gas demand slumps in the so-called shoulder season between the summer months, when hot weather drives power-plant consumption to run air conditioners, and the heating season.
“If we weren’t in the middle of the shoulder season you would see a little more confidence,” Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut, said by phone on Sept. 12. “We probably have six to eight weeks” of moderate weather, he said.
In other markets, hedge funds raised bullish positions on West Texas Intermediate (NYMEX:CLV14) from a 17-month low, adding 8.3% to 186,612 contracts. WTI declined 13 cents to $92.75 a barrel on the Nymex in the period covered by the CFTC report.
Bullish bets on gasoline (NYMEX:RBV14) dropped 775 contracts, or 4.3%, to 17,125, the lowest since September 2010. Gasoline futures rose 0.2% to $2.5484 a gallon on the New York exchange in the report week.
Regular gasoline at the pump, averaged nationwide, fell to $3.395 a gallon Sept. 13, the least since Feb. 21, according to Heathrow, Florida-based AAA, the largest U.S. motoring group.
Net-short positions in ultra low sulfur diesel increased 13% to 20,146 contracts. The fuel dropped 0.2% to $2.7915 a gallon in the report week.
Net-long positions on four U.S. natural gas contracts declined by 15,463 futures equivalents to 115,986, the least since Nov. 19. The measure includes an index of four contracts adjusted to futures equivalents: Nymex natural gas futures, Nymex Henry Hub Swap Futures, Nymex ClearPort Henry Hub Penultimate Swaps and the ICE Futures U.S. Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.
Long positions slid 2.1% to 422,414 contracts, the least since Aug. 12, while short positions rose 2.1% to 306,428, the most since Dec. 3.
“The rally was fueled by the market focused on the forecast that we would go from a period of high cooling demand to a period of high heating demand,” said Viswanath. “That didn’t happen.”