Investment funds hold record long position on Ice TTF

The net long position of investment funds at the Dutch TTF gas hub has reached a record high of nearly 267TWh, according to the latest data released by the Intercontinental Exchange (ICE).

The net long position had already reached a 2.5-year high of nearly 130TWh by mid-June. This position was roughly unchanged until late July. But there then came a sharp 61TWh jump between 26 July and 2 August, and a further 42TWh increase by 9 August.

For the week ending 16 August, investment funds held a combined net long position of just under 266.6TWh, although it had edged down to 263.2TWh by the week ending 23 August, the most recent data show. Both of these figures surpass the previous record on 16 April 2021 of 262.6TWh (see net position graph).

This first week of August was when prices in Europe shot up to a nine-month high following news of damage to the metering station at Sudzha, where the only still-functioning interconnection point between Russia and Ukraine is located. Such a large increase in investment funds' position over that period hints at their influence on overall price formation.

The overall change in net position has been driven by both the opening of more long positions as well as the closing of short positions. Between 26 July and 23 August, investment funds' long positions increased by 79TWh to 465TWh. In the same period, their short positions dropped by just over 53TWh. Their short positions increased by 10TWh in the week of 16-23 August, just as TTF prices fell as market concerns around fighting near Sudzha subsided.

Expectations of continued price volatility may have driven investment funds to build up their long positions. The future of Russian transit through Ukraine beyond this year is unlikely to be decided until late in the year, while significant Norwegian maintenance will drive down European supply this month and may continue to be adjusted at short notice. Investment funds typically make their money from price volatility, whereas utilities make most of their money from the margins on their sales to customers and associated services.

The nearly 132TWh increase in investment funds' net long position between 26 July and 23 August is in sharp contrast to movements from other types of market participants. Commercial undertakings, defined as companies with retail portfolios, switched from a small net long position of 49TWh to a net short position of 40TWh. And investment and credit firms, which had already held sizable net short positions, increased them by a further 44TWh in this time to a total net short of 223TWh. Combining the total net short positions of commercial undertakings and investment and credit firms gives a total of around 263TWh, almost exactly matching investment funds' net long positions.

Commercial undertakings' movements were largely driven by "risk reduction contracts", which more than tripled from a net short of 60TWh on 26 July to nearly 191TWh on 16 August, before falling to 177TWh on 23 August (see commercial undertakings graph). On aggregate this is the largest net short position on risk reduction contracts since the end of 2021. Firms have to hedge large physical long positions in the storage market, with EU storage sites already over 92pc full. At the same time, commercial undertakings' net long positions on contracts classified as "other" rose by around 30TWh to 138TWh, leaving a total net short position of 40TWh.

By Brendan A'Hearn

Ice TTF net positions 2018-present TWh

Commercial undertakings' net positions 2018-present TWh