Bulls fleeing natural gas as Goldman sees further decline

Speculators are fleeing natural gas after prices dropped below $4 for the first time since December, and power plant production fell to a 13-year seasonal low.

Hedge funds reduced net-long positions, or bets on rising prices, by 11 percent in the week ended July 22, the US Commodity Futures Trading Commission said.

Bullish wagers have declined 51 percent since February.

Futures slid as the output from electricity generators, the biggest consumers of the fuel, fell 11 percent in the week ended July 19 from a year earlier to the least for the period since 2001, according to the Edison Electric Institute. Mild weather and a record pace of inventory gains may push prices lower in the next three months, Goldman Sachs Group Inc. said.

“The move down in prices this early in the summer is surprising,” Breanne Dougherty, a natural gas analyst at Societe General SA in New York, said. “The power generation load makes and breaks summers and it’s extremely sensitive to weather.”

Natural gas dropped 7.9 percent to $3.772 per million British thermal units on the New York Mercantile Exchange in the period covered by the CFTC report. The contract for August delivery closed at $3.781 on July 25, capping a sixth weekly decline, the longest stretch of losses since the first quarter of 2010.

Gas inventories, which declined to an 11-year low in late March, have rebounded at the fastest pace since 2001, US Energy Information Administration data show.

Stockpiles rose by 90 billion cubic feet to 2.219 trillion in the week ended July 18, a gain bigger than the five-year average for the 14^th straight week, according to the EIA.

“While we previously believed that risks to 2014 prices were skewed to the upside, we now see downside risks to US gas prices in the next three months,” Daniel Quigley, a Goldman analyst in London, said in a note on July 22.

Net-long positions on four US natural gas contracts declined by 25,772 futures equivalents to 201,090, the least since December 3.