US natural gas prices jumped on Monday as changing weather forecasts prompted hedge funds to unwind bearish positions, with money managers having built their largest net-short exposure to the commodity in years, according to a report by Bloomberg.
Natural gas futures for September delivery settled 5% higher at $2.794 per million British thermal units on Monday after climbing as much as 5.4% during the session. It was the biggest intraday increase since late May.
The move came after forecasts shifted towards significantly hotter conditions across parts of the central and southern US in the coming weeks.
Higher temperatures typically increase electricity demand as households and businesses use more air conditioning, boosting consumption of natural gas by power generators.
At the same time, natural gas deliveries to liquefied natural gas export terminals along the US Gulf Coast rose to their highest level in more than a month, suggesting some facilities are emerging from seasonal maintenance.
Higher LNG exports reduce the volume of gas available to the domestic market, providing another source of upward pressure on prices.
The weather-driven rally was particularly painful for hedge funds that had accumulated large bearish positions.
Commodity Futures Trading Commission data showed money managers held their largest net-short position in US benchmark Henry Hub futures since 2020 last week. Their outright short positions were also at their highest level since at least 2013, when the data series began.
The sudden shift in weather expectations forced some traders to buy back positions as prices rose, amplifying the initial move.
Large speculative short positions can make natural gas particularly vulnerable to sharp rallies when market fundamentals change. In spring 2024, for example, a major short-covering episode involving about 288,000 contracts helped drive futures nearly $1 higher per million British thermal units.
Short-covering also contributed to a dramatic natural gas rally in January, when a severe winter storm disrupted production and simultaneously increased demand. Prices surged about 75% in just three days.
The latest rally remains relatively modest compared with those episodes, and the broader supply picture is still weighing on the market.
US gas inventories remain above seasonal averages, while additional production from West Texas is expected as new pipeline infrastructure comes online.
That means the hotter weather outlook and stronger LNG demand may need to persist if prices are to sustain their advance.
