(Repeats Jan. 23 column. John Kemp is a Reuters market analyst. The views expressed are his own)

* Chartbook: tmsnrt.rs/2E1ZV8Q

LONDON, Jan 23 (Reuters) - U.S. natural gas prices have bounced sharply from their lows in December after a sustained spell of exceptionally cold temperatures pushed stocks near to the bottom of their five-year range.

Futures prices for gas delivered to Henry Hub in February have risen more than 25 percent since Dec. 21. Prices for deliveries in July are up 10 percent.

The tightening calendar spread, with prompt prices rising much faster than those for deferred contracts, is consistent with a market that is undersupplied and trying to conserve remaining stocks.

Rising near-term prices should discourage gas consumption by electric generators in favour of coal while sending a signal to gas producers to increase drilling and output (tmsnrt.rs/2E1ZV8Q).

Gas stocks have been tightening progressively for 10 months, turning a surplus of 400 billion cubic feet (bcf) to the five-year average in March 2017 into a deficit of 200 bcf by the end of the year.

Tightening stocks were not enough to support prices, which fell steadily between May and the week before Christmas.

Hedge funds and other money managers became steadily more bearish about the outlook even as prices continued to decline.

Hedge fund managers cut a net long position in futures and options equivalent to more than 3,900 bcf in May to just 394 bcf by Dec. 19.

The ratio of hedge fund long to short positions dwindled from 5:1 in May to just over 1:1 by the middle of last month.

SHORT AND CAUGHT

The mild start to the winter heating season seemed to encourage increasingly aggressive hedge fund shorting of futures contracts.

Hedge fund short positions climbed from a low of 943 bcf in May to peak at 3,204 bcf in the middle of December.

The blast of cold weather at the start of January seems to have shaken the market out of this rather complacent view.

Gas stocks have fallen by 860 bcf since mid-December, including a record draw of 359 bcf in the first week of January, reflecting temperatures far below normal across the eastern and central United States.

In reality, the winter so far has been colder than the previous abnormally warm winters in 2015/16 and 2016/17 but heating demand has been in line with the long-term average.

Stocks, however, are now 360 bcf below the five-year seasonal average and close to the bottom of the five-year range, making the market its tightest in over three years.

Even this understates the tightness, because structural demand is increasing due to exports of liquefied natural gas and the growing number of gas-fired power plants entering service to replace old coal units.

BEARS REASSESS

Power producers are scheduled to bring an extra 20 gigawatts of gas-fired generating capacity online in 2018, the largest annual increase since 2004 (“EIA forecasts natural gas to remain primary energy source for electricity generation”, U.S. Energy Information Administration, Jan. 22).

The prospect of a tighter market has forced an abrupt turnaround among formerly bearish hedge fund managers and a blistering short-covering rally in prices.

Hedge funds have cut short positions by almost 1,300 bcf or more than 40 percent since Christmas, according to position data published by the U.S. Commodity Futures Trading Commission.

Mostly as a result, the hedge funds’ net long position has surged from a low of 394 bcf on Dec. 19 to 2,074 bcf by Jan. 16.

Fund managers raised their net long position by 686 bcf in the week to Jan. 16 alone, the largest weekly increase since September 2016 and before that December 2013.

Short-covering has accelerated the upward move in prices and seems likely to have continued in the most recent week.

The market became far too bearish before Christmas on the assumption that mild weather would continue indefinitely.

But the concentration of short positions and lack of long ones left prices ripe for a short-covering rally.

When the intense cold of early January caught the hedge fund bears sleeping, it forced a reappraisal of the supply, demand and stocks situation going into 2018 and an upward correction in prices.

Related columns:

“U.S. natural gas prices rise as traders reassess gloomy outlook”, Reuters, Nov. 10

“U.S. natural gas prices under pressure even as stocks tighten”, Reuters, Oct. 23

“U.S. natural gas prices rise as winter stocks look tight”, Reuters, Sept. 19 (Editing by Dale Hudson)