Hedge funds unwind US natural gas shorts as heat lifts prices

Hedge funds rushed to cover large short positions in U.S. natural gas on Monday after forecasts turned hotter for the central and southern United States. September Henry Hub futures settled 5% higher at $2.794 per million British thermal units after rising as much as 5.4% during the session. Deliveries to liquefied natural gas export terminals on the Gulf Coast climbed to their highest level in more than a month.

Forecasters shifted outlooks toward significantly hotter conditions across parts of the central and southern U.S. over the coming weeks. Higher temperatures generally increase electricity demand for air conditioning, which raises natural gas use by power generators.

Commodity Futures Trading Commission data showed money managers held their largest net-short position in Henry Hub futures since 2020, and outright short positions were at their highest level since the data series began in 2013. Traders buying back short positions amplified the price rise.

Gulf Coast flows to LNG export terminals increased, indicating some facilities are returning from seasonal maintenance and restoring export capacity. Higher exports remove gas from the domestic market and reduce supply available to U.S. consumers and power plants.

Similar short-covering episodes have produced sharp moves in the past. In spring 2024, covering of roughly 288,000 contracts pushed futures nearly $1 higher per MMBtu. In January, a severe winter storm that cut production while raising heating demand sent prices up about 75% over three days.

U.S. gas inventories remain above seasonal averages. Additional production from West Texas is expected as new pipeline infrastructure comes online.