The storage-speculation nexus (part 3)
DEEP DIVE: Hedge funds are all at sea after regulatory overhaul triggered epic TTF correction
The EU gas market is in the doldrums, and so are the hedge funds that rode the baseless 2024 TTF bull run up to the stratosphere and back down into the ground.
The bullish thesis that propelled European gas prices to within a whisker of €60/MWh at the start of this year has completely unravelled.
Investment funds banking on a re-run of the 2022 energy crisis unwound the bulk of their net long position in a head-spinning few weeks.
The seeds of the correction were sown when, rather amazingly, European politicians actually sat up and took notice of perverse price signals on the Dutch Title Transfer Facility (TTF).
When the Summer 2025 TTF seasonal contract started trading above Winter 2025-26, the routine calculus of buying cheap summer gas and stashing it away until the premium-priced winter months was turned on its head.
The inverted summer-winter TTF spread made such a mess of the economics of refilling Europe’s network of vast underground natural gas storage caverns that the problem became impossible to ignore.
Speculator’s charter
Fingers were soon pointing at the EU’s rigid gas storage regulations, which set interim gas refilling targets every two months from 1 February to 1 September, and a final target of 90% by 1 November.
The fact that storages were being depleted faster than usual over winter added a sense of panic to this perverse situation. As winter dragged on, it became clear that the storage targets had become a speculator’s charter.
Mandating procurement at an established trajectory every summer regardless of market conditions turned price insensitive storage operators into sitting ducks for predatory hedge funds.
Armed with knowledge of likely procurement volumes and timings, money managers poured speculative capital into long summer positions in a bid to corner the refilling market. This elevated the summer price above winter, making gas storage a lossmaking exercise.
Calls to relax the targets intensified as the spread inversion widened, and the movement achieved political buy-in early in the New Year. The direction of travel was set, and the regulatory cover for holding summer length was blown.
The mere suggestion to relax 2025 restocking targets knocked the legs out from under the ‘tight summer gas market’ narrative that had driven so much speculative capital into absurdly long TTF positions. Donald Trump’s ‘Liberation Day’ trade war nonsense was the icing on the bears’ cake.
By the time the EU Parliament voted in April to lower the bloc’s 1 November target to 83% and to abolish intermediate targets, the storage-speculation nexus that had underpinned bullish momentum had already been severed.
Since February, prompt TTF prices are down more than 40% and fund net length culled by three-quarters. With gas storages now refilling at a decent clip, the critical questions facing the market are:
💥 How did hedge funds reposition along the TTF strip during the selloff?
💥 What does current fund positioning tell us about 2025-26 seasonal price dynamics?
💥 Has upward price risk vanished entirely, or merely shifted from summer to winter?
This Deep Dive answers those questions with hard data.
How? By analysing TTF traded volumes and hedge fund length to identify where residual length in speculative portfolios is now concentrated.
The Commitment of Traders report is like the Rosetta Stone for TTF. But the raw data tells only half the story: the net position gives no indication of which TTF futures contracts on the forward curve are being bought or sold from week to week.
Deciphering the CoT report fully requires an extra level of analysis. This post – the third instalment in a subscriber-only multi-part series – does exactly that.
Part one identified the possible link between storage targets and speculation (August 2024)
Part two used regression analysis to prove the storage-speculation hypothesis (December 2024)
Part three (this post) uses the same technique to dissect the Q1 TTF selloff and assess seasonal price risk for 2025-26
If you trade TTF or highly correlated power/carbon futures, or have material exposure to European energy price movements, then this post is essential reading. Subscribe now for full access.
💥 Article stats: 2,000 words, 10-min reading time, 10 charts and graphs