Market Movers – August 2021

European and U.S. risk assets continued their grind higher as the two developed economies printed strong economic numbers despite major geopolitical events occurring during the month. Inflation levels remained heightened, and the Fed indicated tapering may begin late this year. While most market pundits have focused on macro news centered around monetary and fiscal policy, one market that CTAs have benefitted from not only in August, but the past year, is natural gas in both the U.S. and Europe.

Natural gas prices in the U.S. have climbed about 100% year to date, reaching levels not seen since 2014, with supply concerns acting as the catalyst behind the price moves. When COVID-19 rocked markets in 2020 it caused many indebted oil and gas companies to file for bankruptcy. Oil and gas producers had to repair balance sheets and could not drill due to strained capital markets that have traditionally funded drilling. Natural gas supply over the last year and a half has been depressed due to the lack of associated gas from crude oil production, which is about 1 m/bpd shy of pre-COVID levels. Pure natural gas rig count has not budged since spring, with only about 100 operating now, which is a third of the rig count when natural gas prices were hovering around these levels in 2014.

Weather events have had an adverse impact on prices as well. June and July temperatures in the western part of the country were some of the hottest on record. More recently, Hurricane Ida knocked off production in the Gulf of Mexico, further hampering supply. Inventories are about 16% lower than they were a year ago. Analysts believe that if the U.S. has a cold winter, prices could rise to levels not seen in over a decade. Multi-strategy and trend following managers have benefitted the most from the price action and continue to hold long positions going into the winter months.


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