Hedge funds are increasing their net-long positions in European natural gas futures as the market heads into winter, according to a report by S&P Global citing data from the Intercontinental Exchange (ICE).
After a period of bearish sentiment earlier this year, the shift in positioning is seen as a signal that traders expect further upward pressure on prices in the coming months.
The latest ICE data shows that the total number of positions in Dutch TTF natural gas futures reached 2.88 billion lots in both long and short positions for the week ending 7 October. Of these, commercial undertakings—encompassing a range of entities like commercial enterprises, family offices, and university endowment funds—held the largest share at 65%. Investment funds, including hedge funds, accounted for around 21%, while investment firms and credit institutions, such as brokers and proprietary traders, made up the remaining 14%.
Despite the dominance of physical market participants in Dutch TTF futures, the increased bullish positioning by investment funds has raised expectations for heightened volatility this winter. The net-long position of investment funds grew by approximately 15% week-on-week, reaching a three-week high at the start of the winter season.
In contrast, commercial undertakings – which typically represent physical market players – expanded their net-short positions by nearly 59% over the same period, suggesting a divergence in outlook between financial and physical market participants.
Hedge funds have been a significant driver of price movements throughout the summer, with traders expecting further volatility in the European gas markets through the remainder of Q4 2024 and into early 2025. Many attribute the growing net-long positions to expected demand growth in Asia, alongside delays in US liquefied natural gas (LNG) project startups slated for next year.
The bullish positioning of hedge funds appears to be influencing 2025 price expectations as well. Platts, part of S&P Global Commodity Insights, recently assessed the Dutch TTF 2025 contract at €38.355/MWh on 9 October, a slight decline from the previous day’s level of €38.545/MWh. Over the past month, the Dutch TTF 2025 contract has experienced fluctuations, dropping 3% from 13 to 20 September before climbing 5% to €37.975/MWh on 27 September, and then rising another 5% to reach €39.955/MWh by 7 October.
This price movement has mirrored the changes in net-long positions held by investment funds. Their holdings decreased by 13% between mid-September and late September, followed by a 5% drop the following week. From September 27 to October 7, however, funds increased their net-long positions by around 15%, which traders believe has provided further support to the recent price rally.
Analysts see the increased hedge fund activity as a catalyst for further volatility in the European gas and LNG markets. “Funds are holding longer positions compared to a few weeks ago when prices rallied, and their increased volumes mean that any bearish headlines could trigger sharp movements in a short time frame,” said one LNG trading analyst, who also noted that positions are nearing historical highs, with ongoing concerns about supply buildup delays and uncertainty surrounding when volumes will reach the market.
At the same time, strong demand signals from Asia—driven by a new stimulus package in China and increased LNG imports by Southeast Asian countries—are supporting the bullish outlook.
