Wall Street Is Betting Big Against Natural Gas as a Mild Winter Looms

Wall Street is making significant bets against natural gas as predictions of a mild winter emerge. Speculators are heavily invested in short positions, making this the largest bearish stance on natural gas in several years. However, with a crowded short market and diminishing storage levels, the scenario could shift dramatically with a sudden cold snap.

As of October 20, 2026, speculators held a total of 505,747 short contracts for NYMEX Henry Hub natural gas, compared to only 264,475 long contracts. This results in a net short position of 241,272, the highest level since February 11, 2020, according to data from the Commodity Futures Trading Commission released on October 23.

Natural gas prices have seen a sharp decline due to forecasts predicting warmer weather. The United States Natural Gas Fund (NYSEARCA: UNG) fell by 3.13%, settling at $9.58. Conversely, EQT (NYSE:EQT) experienced a rise of 1.76%, while Expand Energy (NASDAQ:EXE) saw a modest gain of 0.29%.

For investors in these assets, the split between long and short positions is crucial. When short positions become excessively crowded, the potential for rapid price reversals increases, and holding a futures fund can be costly during such times.

Hedge funds have amassed their largest short positions since early 2024. The net short for these funds rose to 157,409 after a reduction of long positions by 24,641 and an increase of short positions by 6,287. This figure is the highest since February 20, 2024. Additionally, managed-money shorts across seven benchmark contracts totaled 569,954, marking the second-highest level since August 2013.

Short sellers are required to repurchase contracts to close their positions, and if a cold snap occurs, the sudden demand from multiple sellers could lead to a sharp increase in prices.

Recent warm forecasts contributed to a steep decline in natural gas prices. The November gas contract settled at $3.116 on October 16, then dropped to $2.790 on October 21 and slightly increased to $2.796 on October 22. As of late Friday, prices hovered around $2.63, reflecting a weekly decline of approximately 15% to 16%, a monthly decrease of about 22%, and a yearly drop of around 34%.

The December contract, which will soon become the front month, fell from $3.386 to about $3.05. The government's winter outlook predicts a strong El Niño, which is expected to bring warmer temperatures across the northern U.S., the Midwest, and much of the East. Ken Graham, head of the National Weather Service, noted that “a very strong El Niño will likely bring a southward and eastward shift to the jet stream.” Short-term forecasts indicate a 70% to 80% chance of above-normal temperatures in the Southeast from October 29 to November 2. Phil Flynn from Price Futures Group commented that prices are currently fluctuating based on weather conditions.

Despite a bullish storage report, the market has largely overlooked it. Recent data showed an increase in inventories by 77 Bcf, which fell short of the anticipated 79 Bcf and was lower than the 86 Bcf added during the same period last year, as well as the five-year average of 87 Bcf. Current storage levels are just 1.0% above the five-year average but 4.0% below last year's figures.

Natural gas production has decreased to about 111.4 Bcf/d, down from a record high of 113.3 Bcf/d. On the other hand, gas exports have risen to approximately 18.2 Bcf/d. Ongoing tanker attacks in the Strait of Hormuz have kept European prices elevated, thus sustaining demand for U.S. exports. Robert DiDona from Energy Ventures Analysis stated that “there's not much reason to be very bullish” at this time, emphasizing that weather conditions may have a more significant impact than supply metrics in the near term.

While producers like EQT have seen some gains, the United States Natural Gas Fund has struggled. Goldman Sachs recently increased its target for EQT from $59 to $62 and for Expand from $110 to $117. EQT's stock rose by 2.45% over the week, while Expand experienced a slight decline of 0.19%.

The UNG fund, which ended just above its 52-week low of $9.51, has posted a return of -26.65% over the past year. The fund's strategy involves continuously selling expiring contracts and purchasing later ones, which can incur losses if the later contracts are more expensive. This situation makes UNG primarily a trading instrument, and even a short squeeze may only temporarily alleviate its losses.

In contrast, EQT has demonstrated relative strength, maintaining its value amid falling gas prices without the burden of contract switching costs, and is supported by long-term contracts. If EQT can sustain its price above $55.63 following its earnings report on October 27, it will indicate that the disparity between producer valuations and natural gas prices remains stable.

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