Hedge Funds Hold Record Short Position in US Natural Gas as NOAA Forecasts Warmer Northern Winter

Hedge funds have never been this bearish on U.S. natural gas.

Money managers' short-only exposure across seven benchmark Henry Hub contracts reached 599,731, according to Commodity Futures Trading Commission data released Friday, Oct. 23. Bloomberg's tally shows that is the largest in data going back to May 2013.

The bet is simple. Traders expect a mild winter and weak demand for furnace and power-plant fuel.

The forecast behind the bet

The National Oceanic and Atmospheric Administration released its U.S. Winter Outlook on Oct. 15. It calls for warmer-than-average temperatures across the northern U.S. and wetter-than-average conditions across the southern tier, from California to Florida and up the Eastern Seaboard.

A strong El Niño is shifting storm tracks, and that is a large part of the bearish case. Warmth cuts heating demand, and heating demand is what draws gas out of storage.

The short-term weather is also soft. XTB analysts cited Commodity Weather Group forecasts of above-normal temperatures across the eastern half of the country through Nov. 3. Premier Energy Management put residential demand at about 5.1 billion cubic feet per day against a norm near 7.5.

Prices and storage

Prices have followed the weather. Premier reported the November NYMEX contract settled at $3.058 per million BTUs on Monday, Oct. 19, its lowest settlement since Oct. 2. XTB later put the contract near $2.81, down about 14% on the week, at a three-week low. That contract expires Oct. 28.

The Energy Information Administration's latest storage report, for the week ended Oct. 16, showed a 77 billion cubic foot injection. Analysts had expected 79 Bcf. Last year's build for the same week was 86 Bcf, and the five-year average is 87 Bcf.

Total inventories stand at 3.644 trillion cubic feet. That is 4% below a year ago and 1% above the five-year average.

The cushion has thinned. The prior week's 67 Bcf injection was the ninth straight below-normal build, and Premier noted the surplus to the five-year average has shrunk from nearly 5% in early September. The South Central region is tighter than the national picture. Gulf Coast salt caverns held 236 Bcf against a 279 Bcf average as of the week ended Oct. 9.

The squeeze risk

Crowded trades can turn violent. Schwab Network's Kevin Green noted that from October 2024 to January 2025, natural gas prices rose nearly 100% on unpredictable weather and short covering by managed money.

He measured managed money's net position at roughly -144,000 contracts as of his Oct. 19 note, close to the October 2024 low of -146,937. XTB cited a different CFTC figure, a net fund short of -233,578 contracts, which it placed at the 1.3th percentile of the historical distribution. The numbers differ depending on which contracts are counted, but both sources describe an extreme bearish tilt.

XTB's read is that the setup "creates the potential for a sharp short squeeze at the slightest cold surprise." Green made the same point about an Arctic blast or hard freeze in the northern U.S.

The case against the shorts

The bullish argument rests on exports, not the thermometer. Premier reported Asian spot LNG hit $30.40 per million BTUs on Oct. 19, the highest since December 2022, after an LNG carrier came under fire off Yemen. It put European TTF near €87.90 per megawatt-hour.

Premier also said roughly 17% of Qatar's Ras Laffan liquefaction capacity is damaged, and that crude flows through the Strait of Hormuz have dropped to about 8.5 million barrels per day from more than 20 million. Those figures come from one market commentary, and the Qatari and shipping data behind them were not independently confirmed here.

European Union gas storage is only about 74% full, according to Green, well below its pre-winter target. That keeps the pull on U.S. LNG strong. Premier expected feedgas to U.S. export plants to rebound to a five-month high near 18.9 Bcf/d by Friday. XTB put October LNG exports at 18.1 Bcf/d, up from 17.9 in September, while production dipped to 111.3 Bcf/d from a record 113.3 in August and September.

Even so, XTB said that is "not enough to offset the scale of heating demand destruction."

Not everyone expects a rally

The forward curve is not pricing a spike. Premier put the winter 2026-27 strip near $3.24. It cited the EIA's October outlook of $3.30 for Henry Hub in the fourth quarter and $3.47 in the first quarter of 2027, roughly where the curve already sits.

A FX Empire analyst went further. He had called for January 2027 gas to hold above $3.75, and it settled at $3.741 on Sept. 18, missing that line. He now expects it to fall toward $3.25. His reasoning is that in all 12 winters since 1994 that began with storage this close to normal, January futures were lower by Nov. 30. That is one analyst's model, not a forecast from the EIA.

Regional prices show how uneven the market is. Premier reported next-day gas at Transco Zone 6 New York near $0.88 and Algonquin Citygate near $1.17, both far below Henry Hub. Dominion South in Appalachia was lower still.

What comes next

The November contract expires Oct. 28, and the market rolls to December, which Green saw trading at $3.164 on Oct. 19. The next EIA storage report is due Thursday, Oct. 29 at 10:30 AM ET.

It will show whether builds keep lagging the five-year norm while the winter forecast stays warm. That gap between record short positioning and a thinning storage surplus is what the next few weeks will test.