Net long positions reach multi-year high: ICE data

Fund positions increase uncertainty for 2025

According to data from the Intercontinental Exchange, hedge funds have continued to increase their net long positions in the European natural gas and LNG markets week after week, reaching multi-year highs. Traders see the funds’ positions as one of the main reasons for the uptrend, but also for the uncertainty.

According to the latest ICE data, the number of positions for Dutch TTF natural gas futures in the week ended August 16 totaled 2.99 billion lots for both long and short positions.

The largest share, 64 percent, was contributed by commercial companies, which, according to the ICE index data, include unregulated traders, commercial enterprises, family offices and university endowment funds.

The largest share, at almost 22 percent, was accounted for by investment funds, which include mutual funds, investment funds, ETFs and hedge funds.

In third place, with 14 percent, were securities firms or credit institutions, which are brokers and proprietary traders in commodity derivatives.

The remaining positions were allocated to other financial institutions and operators with obligations under Directive 2003/87/EC.

While physical market participants hold the largest share of positions, traders point out that mutual funds have played an increasing role in recent years.

Notably, mutual funds’ net long position rose nearly 14% week-on-week, according to the data, reaching the highest net long position taken by funds since July 2, 2021.

“I have recently witnessed a significant adjustment in speculative positions in the gas market, with the trend toward short covering the week before being the largest single week of speculative buying pressure – the most significant net long position since 2021,” said one gas trader. “In particular, the lack of shorts over aggressive long positions.”

An LNG trader added that there are no real bullish factors in the European gas and LNG markets other than the likely expiration of the Russia-Ukraine transit and hedge funds’ current positions in the futures markets.

A second LNG trader added: “I don’t know if people believe prices are going to go up, but it’s more than the potential loss if you’re short that’s bigger than the loss if you’re long. If you’re long, you know how much you can lose, but if you’re short, you don’t know how much gas you need.”

A Czech gas trader recently observed “huge speculation” in the European gas market and attributed this to the stress levels of funds. He said the underlying fundamentals were “still pessimistic” but that “prices are going up.”

Impact of funds for 2025

A Germany-based trader said the funds had taken long positions on the TTF summer 2025 contract.

“Most people are betting that a normal winter would use up the reserves and that we were lucky and had a mild winter two years in a row,” the trader said.

“Nobody I speak to is really convinced, but you have to invest all the fund money somewhere,” the trader said. “Most fund traders were taken out of the fund at the peak of the market, now they have to justify their positions and in a La Niña year it can get cooler.”

“I agree with them that most of the moves occur during the replenishment phase in the summer and not in the winter, where risk premiums are simply reduced over time,” the trader added.

Given delays in the provision of new LNG supplies for 2025 and the likely expiration of the transit agreement between Russia and Ukraine, traders are seeing funds increasingly taking net-long positions despite the structural decline in European gas and LNG markets ahead of this winter.

“In the second week we see huge volumes, around 30 TWh, but honestly after this rise I’m not that surprised – you would expect some stop losses… the movement is more towards less short than more long,” said a Switzerland-based gas trader. “I think everyone is pretty convinced that this length will be reached in the summer of 2025.”

Platts, part of S&P Global Commodity Insights, valued the Dutch TTF winter 2024 contract on August 21 at a premium of EUR 1.255/MWh over its summer 2025 counterpart, the lowest level since the beginning of the month. This spread was valued at an average premium of around EUR 1.365/MWh in July.

“There is still some risk in the first quarter, of course, but just because of the price increases in the summer and the buying interest we saw there. There is still some geopolitical risk in the first quarter, but how do you know how much is already priced in? I think the first quarter is still manageable, but when the summer comes and nobody can replenish the stocks, the summer is so strong given this enormous risk that it will be very difficult,” added the Switzerland-based trader.

Due to the uncertainty about next year, the differences in LNG deliveries in Northwest Europe in summer 2025 and winter 2025 are also small.

Data from Commodity Insights shows that Platts priced the NWE LNG Summer-25 contract at a discount of 45 cents/MMBtu to the Winter-25 contract on August 21. By contrast, the discount was $1.15/MMBtu on August 21, 2023.