New York: Hedge funds cut bearish natural gas bets as prices surged to four-month high in anticipation of summer heat.

Money managers reduced their net-short position in four gas contracts by 37 per cent in the week ended May 12 to the smallest since March 24, US Commodity Futures Trading Commission data show. Short contracts fell 3.1 per cent while long wagers jumped 4.7 per cent.

Gas has rebounded 23 per cent from a 34-month low on April 27 as forecasts for warmer US weather signalled higher demand for the power-plant fuel. Electricity producers are poised to burn a record amount of the fuel this year, government data show.

“You don’t want to be short right here going into summer because if you’re hoping for a mild summer, that’s really a stretch,” John Woods, president of JJ Woods Associates and a Nymex floor trader, said May 15. “If you have any kind of summer, we can get up to $4 relatively quick.”

Futures advanced 4.2 per cent, to $2.897 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. Prices then surged to $3.016 Friday, the highest settlement since Jan. 16.

Temperatures will be above normal along the East Coast through May 29, with the intensity of the heat picking up in the last 5 days of the forecast period, according to MDA Weather Services in Gaithersburg, Maryland. The high in Washington on May 22 maybe 78 degrees Fahrenheit (26 Celsius), 1 above normal, before jumping two days later to 85, according to AccuWeather Inc.’s website.

Generators will burn 19 per cent more gas this month than a year earlier, the US Energy Information Administration said in May 12. Power-plant consumption will average a record 25.21 billion cubic feet a day this year.

Rising Inventories

While gas inventories have been rebounding faster than the five-year average since the start of April, actual storage injections fell short of analysts’ expectations.

The expectation is that rising demand in June, July and August will coincide with production growth that “is going to slow substantially in the second and third quarter,” Kyle Cooper, director of research at IAF Advisors in Houston, said May 15 by phone.

Total gas output from the seven biggest US shale deposits will slip by 112 million cubic feet a day in June to 46.19 billion as drilling slows at oil-rich fields such as the Bakken in North Dakota and Eagle Ford in Texas, EIA data show.

Speculator Positions

Net-short positions in four US natural gas contracts held by money managers fell by 26,515 futures equivalents to 45,710 in the week ended May 5, according to the CFTC. Long positions increased by 14,507 to 324,844, the most since Feb. 3. Bearish bets fell by 12,007 to 370,555.

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 US Henry Hub contract. Henry Hub, in Erath, Louisiana, is the delivery point for Nymex futures, a benchmark price for the fuel.

“We are definitely going into a period when demand should start to increase,” said Cooper. “Mother Nature can throw big curveballs and you have to be prepared for that.”