(Bloomberg) — Bullish sentiment on European natural gas is receding sharply, amplifying price swings as some investors pull out of the market amid mounting geopolitical uncertainties.
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Investment funds cut their net-long position in benchmark Dutch futures for a third week, bringing it to the lowest level since late July, according to data published by Intercontinental Exchange Inc. on Wednesday. Outright longs fell by the most in more than three years.
Bullish wagers have been trimmed after nearing a record earlier this year. Tensions between US President Donald Trump and his Ukrainian counterpart Volodymyr Zelenskiy have disoriented markets, as have Trump’s trade tariffs program. Uncertainty over the potential impact on European gas supplies has prompted bigger volatility, while the region faces pressure to refill its storage sites in the coming months.
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Bigger fuel consumption this winter and the end of a transit deal between Russia and Ukraine have intensified the challenge of replenishing stockpiles, which dropped to the lowest since 2022. While speculation over a potential conclusion to Russia’s war in Ukraine helped push prices lower over the course of February, they remain prone to sharp spikes as events unfold.
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The number of outstanding contracts has also dropped sharply — signaling that investors are closing positions — with aggregate open interest at the lowest in more than 10 months at the start of March, according to data compiled by Bloomberg.
Speculators — primarily investment funds — that boosted bullish bets on European gas earlier this year have been pulling out, BloombergNEF analyst Han Wei said.
“Traders might be trying to limit risk exposure amid the huge uncertainties around Russia-Ukraine peace deal and possible return of Russian gas,” he said. Closing unusually large positions in March contracts accounted for more than 60% of the aggregate open interest decline, he added.
In the meantime, the European Commission postponed publishing a plan to phase out Russian fossil fuels originally scheduled for March 26, causing more price swings Wednesday as traders digest signals on the supply outlook. Benchmark Dutch futures settled 4.5% lower at a one-week low of €41.51 a megawatt-hour, down around 30% from this year’s peak.
