Traders are showing the most bearish sentiment on oil in months, while optimism surrounding U.S. natural gas has reached levels not seen in years.
Recent data on hedge funds and money managers’ positions in WTI and Brent crude, as well as U.S. natural gas futures, reveal two diverging trends. Speculators are increasingly betting that oil prices will remain low or decline further, while confidence in rising natural gas prices continues to grow.
Geopolitics and Market Forces Weigh on Oil Prices
So far this year, geopolitical tensions and shifting supply-demand dynamics have contributed to a bearish outlook for oil. Meanwhile, these same factors have fueled a more bullish stance on natural gas.
Hedge funds and portfolio managers have been steadily reducing their bullish positions on crude oil since late January. At the time, U.S. sanctions on Russia’s oil trade had driven optimism about tighter market conditions. However, sentiment quickly deteriorated as President Donald Trump took office. His push for lower oil prices, efforts to negotiate an end to the war in Ukraine, and uncertainty surrounding tariffs have created significant market unease.
Despite expectations of reduced oil supply from Iran and Venezuela due to Trump’s hawkish policies, investors remain skeptical about future price gains. Adding to the bearish sentiment, the OPEC+ alliance recently announced plans to boost production starting in April, placing additional downward pressure on prices.
Hedge Funds Cut Oil Bets Amid Market Uncertainty
Faced with these bearish signals, money managers have significantly reduced their bullish positions in crude oil futures. At the end of February, net long positions in WTI crude—representing the gap between bullish and bearish bets—fell to their lowest level in 15 years.
However, in the week leading up to March 4, traders reversed course, with WTI seeing renewed buying activity. This rebound was not due to increased confidence in rising prices but rather a short-covering rally in U.S. crude futures.
Brent crude also saw a major shift. In the same period, hedge funds made their largest cut to bullish bets since July 2024.
Natural Gas Surges as Cold Winter Drives Demand
In contrast to crude oil, market sentiment on U.S. natural gas has grown increasingly bullish. This winter, gas inventories dropped below the five-year average due to surging demand, driven by the coldest winter in six years.
In the week ending March 4, net long positions in natural gas climbed even higher. The number of new bullish bets outpaced new short positions by a ratio of four to one, signaling strong confidence in future price gains.
“Natural gas continues to benefit from rising demand, both domestically in the U.S. and through LNG exports,” said Ole Hansen, Head of Commodity Strategy at Saxo Bank, referencing the latest Commitment of Traders report.
At the start of the winter heating season in November, U.S. natural gas stocks were above average, reaching their highest levels since 2016. However, these reserves were quickly depleted as demand for heating and power generation soared.
With just a month left in the winter heating season, U.S. natural gas inventories now sit below the five-year average and significantly lower than the same period in 2024, which followed a mild winter.
The combination of lower inventories and rising demand—both for domestic use and LNG exports—has pushed prices higher. As new U.S. export terminals ramp up operations, traders are betting that natural gas prices will continue to climb, incentivizing producers to increase output in the coming months.
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