Natural Gas Price is Very Low at $3.812/mmBtu

Hedge funds cut bullish bets on natural gas to the lowest level this year, a sign that prices may be bottoming if history is a guide.

Hedge funds and other large speculators reduced wagers on rising prices for the third straight week in the seven days ended Aug. 24, lowering them by 16 percent, according to data from the Commodity Futures Trading Commission. Gas rallied 63 percent last September, following the Sept. 7 Labor Day holiday and relative strength charts watched by analysts show a similar rebound is possible this year.

The prospect of utilities switching to gas from coal and hurricanes disrupting production in the Gulf of Mexico is raising speculation prices will rebound, according to Teri Viswanath at Credit Suisse Securities USA. Investors abandoned gas markets this year, sending prices to an 11-month low last week, amid forecasts that stockpiles will be near record highs by the end of October.

“This is as bearish as we get,” said Teri Viswanath, director of commodities research at Credit Suisse in Houston. “That same mentality occurred last year between now and Labor Day, and then there was a V-shaped recovery in price.”

Natural gas rose for only the fifth day this month, gaining 10.7 cents, or 2.9 percent, to settle at $3.812 per million British thermal units on the New York Mercantile Exchange. Futures are down 23 percent this month compared with a 19 percent drop last August.

Relative Strength

The fuel’s 14-day relative-strength index slipped to 21.5 on Aug. 27, the third straight day it stayed below 30. Relative strength indexes are used by technical analysts to determine when a security has fallen or risen too far. A reading of 30 typically signals prices will increase, while 70 often indicates they will decline. Gas has risen in seven of the last 10 Septembers, according to data compiled by Bloomberg. The index dropped to 28.9 on Sept. 3, 2009, before rising to 66.9 by Oct. 10 last year.

“We’re going to see a rebound in prices going into the winter demand season,” said Hamza Khan, an analyst at the Schork Group in Villanova Pennsylvania. “Just as gasoline prices rise before the summer driving-demand season, natural gas prices rise before heating season.”

The most active part of the Atlantic hurricane season is from Aug. 20 to about Oct. 20, according to William Gray, who pioneered seasonal forecasts at Colorado State University in Fort Collins.