NextFin News - Hedge funds and other money managers have flipped to a net-bearish position on U.S. natural gas for the first time in nearly two years, signaling a sharp reversal in market sentiment as domestic production remains near record highs and storage levels sit comfortably in surplus territory. Data released by the Commodity Futures Trading Commission (CFTC) for the week ending May 26 shows that managed money net positions fell to -119,870 contracts, a significant retreat from the bullish stance held throughout the early spring.
The shift marks the first time since 2024 that speculative investors have collectively bet against the fuel. According to Julian Hast of Bloomberg, the pivot is driven by a combination of mild late-season temperatures and a resilient supply chain that has defied earlier expectations of a tightening market. While prices at the Henry Hub had briefly flirted with the $3 per MMBtu mark earlier in the quarter, the prompt-month contract has since retreated, trading near $2.50 as the market enters the "shoulder season" of lower demand between winter heating and summer cooling.
The bearish turn is particularly notable given the supply-side discipline many analysts expected from U.S. shale producers this year. However, production has remained stubbornly high, with active natural gas rigs reaching a 2.5-year peak in late February. This output, coupled with a storage surplus that exited the winter heating season on stable footing, has left the market with few immediate catalysts for a sustained rally. According to data from the American Gas Association, underground storage remains in surplus territory compared to five-year averages, providing a significant buffer against potential supply shocks.
Despite the prevailing pessimism among hedge funds, some market participants suggest the bearishness may be overextended. Analysts at StoneX noted that a post-winter seasonal low appeared to be in place after the May contract traded down to $2.483. They argue that any significant shift toward warmer-than-average summer weather could quickly force a short-covering rally, as power generators increase gas consumption to meet air conditioning demand. This perspective, however, remains a minority view in a market currently dominated by supply-side data.
The broader energy complex has also provided little support for gas prices. WTI crude oil prices saw a sharp 5.5% decline in late May, weighing on the entire commodities sector and reducing the incentive for investors to maintain long positions in energy derivatives. For natural gas, the path of least resistance appears to be lower until the summer heat arrives in earnest or producers show more definitive signs of scaling back operations. For now, the "managed money" crowd is betting that the current glut will take months, not weeks, to clear.
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