Net bullish bets on European natural gas by funds saw a significant increase of 13% last week, marking the extension of an advance that began in February. This surge brought these bets to their highest level since 2018, as recorded by Intercontinental Exchange Inc. data compiled by Bloomberg. This trend indicates growing speculative interest in the commodity, even as prices have recently experienced a selloff after reaching a record high earlier this week.
This record bullish sentiment among funds was also observed earlier in the year. In the week ending March 6, bullish wagers were at their highest since February of the previous year, with net long positions in benchmark Dutch gas futures increasing by nearly 62%. This was largely attributed to the escalating Middle East tensions clouding the outlook for global energy flows, specifically concerning disruptions in the Strait of Hormuz, a critical route for LNG shipments.
The volatility in European gas markets has been further exacerbated by geopolitical events. Reports of an attack on a commercial tanker in the Strait of Hormuz recently caused European wholesale natural gas prices to climb sharply, reaching multi-month highs. These renewed maritime tensions coincided with a 2.2% rise in global crude oil prices, further pressuring oil-linked gas contracts. Europe's increased reliance on seaborne LNG following reductions in Russian pipeline gas supplies makes it particularly vulnerable to disruptions in key shipping lanes.
Funds also shifted to net long positions in January, specifically in the week ending January 16, as unusually cold weather drove up prices by 30% in a week. This shift followed a reduction in net short positions that had been in place since late November, demonstrating how funds react to both weather-related demand spikes and geopolitical risks. The ongoing instability in the Middle East continues to add significant geopolitical risk premiums to prices, driving market speculation.
