By Asjylyn Loder
Dec. 28 (Bloomberg) -- Hedge funds raised bearish natural gas bets by the most since October on forecasts that higher- than-normal temperatures in the first weeks of the New Year will reduce demand for the heating fuel.
The funds and other large speculators cut net-long positions, or wagers on rising prices, by 35 percent in the seven days ended Dec. 21, according to the Commodity Futures Trading Commission’s weekly Commitments of Traders report. It was the largest drop since Oct. 12.
Natural gas has declined 24 percent this year as stockpiles reached record levels for the second straight November. Warmer- than-normal weather forecast for early next month may reduce the demand needed to erode surplus inventories.
“The first two weeks of January, you’re going to see the market turn around from December cold,” said Dave Melita, president and chief meteorologist of Melita Weather Associates in Durango, Colorado. “The snow cover will be melting fast. It will be 20 degrees above average on some days.”
Temperatures in Chicago will dip to a low of 19 degrees Fahrenheit (7 Celsius) on Jan. 1, 2 degrees above normal and 14 degrees higher than a year earlier, according to AccuWeather Inc. in State College, Pennsylvania. New York will fall to 38 degrees, 10 above average. About 52 percent of U.S. households use natural gas for heat.
Natural gas for January delivery advanced 10.4 cents, or 2.5 percent, to settle at $4.216 per million British thermal units on the New York Mercantile Exchange. The contract expired today. Gas for February delivery rose 13.3 cents to $4.288. Heating demand drove gas prices above $6 last January.
‘Blowtorch Hot’
Higher-than-average temperatures will persist throughout the Midwest and eastern U.S., with potential in February for “blowtorch hot” weather compared with seasonal norms, Melita said.
The Energy Department reported last week that inventories declined by 184 billion cubic feet in the week ended Dec. 17 to 3.368 trillion cubic feet. Stockpiles reached a record 3.84 trillion the week ended Nov. 5.
Gas stockpiles will total 1.833 trillion cubic feet at the end of the winter heating season in March, about 171 billion cubic feet higher than at the end of March 2010, the Energy Department said Dec. 7 in its Short-Term Energy Outlook.
U.S. natural gas production may reach a record high of 62.09 billion cubic feet a day this year, the department said.
“It’s a pretty bearish picture weather wise, and we’re really not seeing a decline in production,” said Hamza Khan, an analyst with the Schork Group Inc., a consulting company in Villanova, Pennsylvania.
Price Drop
If natural gas falls below price support at $3.60 per million Btu, “it’s hard to call a bottom,” Khan said. Prices closed at a 2010 low of $3.292 on Oct. 27.
Net-long positions in natural gas held by managed money, including hedge funds, commodity pools and commodity-trading advisers, in futures and options combined in four natural-gas contracts declined by 37,324.8 futures equivalents to 70,294 in the week ended Dec. 21.
The measure of net longs 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 oil increased by 1,578 futures and options combined, or 0.8 percent, to 207,468, according to the CFTC report.
Oil Jumps
Oil has risen 15 percent this year on speculation the global economic rebound will boost fuel consumption and erode stockpiles. The International Energy Agency, in its monthly report Dec. 10, upgraded its demand forecast for next year, citing gains in North America and China.
Crude inventories reached a 2010 peak the week ended Oct. 29, declining 7.5 percent since then to 340.7 million barrels in the week ended Dec. 17, the lowest level since February, the Energy Department reported last week. Oil rose 12 percent in that time.
Bullish, or long, bets on gasoline prices rose 3.2 percent to 69,113 futures and options combined, the CFTC data showed. Net-long bets on heating oil rose by 3.6 percent to 37,902.
--With assistance from Christine Buurma and Moming Zhou in New York. Editors: Bill Banker, Richard Stubbe
To contact the reporter on this story: Asjylyn Loder in New York at aloder@bloomberg.net.
To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net.
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