Hedge funds have amassed their largest short position in US natural gas futures on record, betting that an unusually mild northern hemisphere winter will weaken heating demand and put further pressure on prices, according to a report by Bloomberg.

Short-only positions across seven benchmark Henry Hub contracts climbed to 599,731, the highest since Commodity Futures Trading Commission records began in May 2013. Net short positions rose to 192,728 contracts, their most bearish level in more than six years, while bullish wagers fell to their lowest in almost two years.

The positioning shift follows a sharp decline in US natural gas futures, which fell more than 15% over the week, their steepest weekly drop since February, as weather forecasts pointed to warmer-than-expected conditions during the early winter months.

Commodity Weather Group expects October and November to rank as the third-warmest comparable period in records dating back to 1950, reinforcing expectations that a strong El Niño weather pattern will suppress demand for natural gas used in heating and electricity generation.

However, the concentration of bearish positions has heightened the risk of a short squeeze if temperatures fall unexpectedly. A sudden cold snap could simultaneously increase heating demand and disrupt production, forcing hedge funds to cover positions and potentially accelerating a price rebound.

A similar scenario unfolded in late January, when a winter storm triggered a sharp rally in natural gas prices. Money managers reduced short-only positions by more than 53,000 contracts in a single week, the largest weekly decline in more than a year.

The latest positioning leaves hedge funds heavily exposed to changes in winter weather forecasts, with any reversal towards colder conditions potentially triggering substantial short covering.