Investment funds have slashed their TTF net long positions on the Intercontinental Exchange (Ice) nearly in half so far in April, with commercial undertakings' net long position conversely rising.
Investment funds' net long position on Ice dropped to 86TWh in the week ending 17 April, well below the 146TWh at the end of March, and was as low as 73TWh on 11 April (see net positions graph). The near-halving of their net position was driven entirely by the closing of longs, which dropped to 308TWh by 17 April from 383TWh on 28 March. In contrast, shorts dropped by only 16TWh in the same period, the exchange's most recent Commitments of Traders report shows.
This left investment funds' total amount of open positions at 529TWh by 17 April, well down from 620TWh on 28 March. Global commodity market turmoil in recent weeks following the US' ‘liberation day' on which president Donald Trump announced tariffs on nearly every country may have prompted funds to reduce their exposure to gas market. The resulting fallout in global commodity, stock, bond and currency markets would have hit multi-strategy hedge funds in particular, which had exposure to many different assets, some of which are thought to be among the largest players in the overall investment fund category of participant. Wider macroeconomic factors rather than market fundamentals have driven the TTF this month, according to many traders, with daily TTF movements frequently having tracked wider moves across global macroeconomic indicators such as the S&P 500 index.
In contrast with investment funds' sharply reduced net long position, commercial undertakings — the other largest category of market participant, mostly comprising firms with retail portfolios — more than doubled their net long position to 85TWh on 17 April from 33TWh on 28 March. This means commercial undertakings' and investment funds' net positions now have nearly exactly converged, with the difference between them having been as wide as nearly 350TWh as recently as early February. Commercial undertakings first flipped to a net long position in the week ending 28 February, and the net long has steadily increased every week since then.
While investment funds significantly reduced their overall exposure to the TTF, commercial undertakings increased both their long and short positions in April. Total shorts rose by about 34TWh between 28 March and 17 April to 1.055PWh, while longs soared by 86TWh to 1.140PWh. This leaves their total open positions at about 2.195PWh, more than quadruple investment funds' 529TWh.
The data could suggest that commercial undertakings took advantage of hedge funds unwinding their long positions, leading to a reallocation of about 90TWh of liquidity from speculative positions to risk reduction contracts. The large majority of commercial undertakings' overall open positions are risk reduction contracts, which total 1.457PWh out of aggregate open positions of 2.195PWh, or 66pc. In contrast, investment funds hold zero risk reduction contracts, making it likely that all of their interest is speculative.
Commercial undertakings' risk reduction shorts increased only by about 7TWh between 28 March and 17 April to 747TWh, but longs soared by 92TWh over the same period to an all-time high of 710TWh. As recently as 28 February, risk reduction longs were as low as 550TWh, meaning an overall increase of nearly 200TWh in less than two months. The only other time in recent history when risk reduction longs increased at such a rapid pace was in 2018, when they jumped from 445TWh on 30 July to a peak of 644TWh on 15 October (see risk reduction graph).
One explanation for such a distinct increase in risk reduction longs while shorts remained roughly even could simply be that utilities have purchased winter contracts instead of the more usual practice of hedging physical gas bought for summer injection by selling winter contracts. Typically, summer prices are below winter thanks to lower seasonal consumption, so a utility would buy the summer to inject the gas and sell the winter for when it will be withdrawn, locking in a profit margin. But because summer prices this year remained above winter, there was no commercial incentive to lock in a negative spread, meaning utilities may simply have opted to buy winter contracts to cover their expected demand. But since the turn of April, TTF summer-month prices have increased their discount to the front-winter, providing more of an incentive to inject gas.
