Amaranth II? Natural Gas Futures Moves Make Traders Queasy

Jun 17 2010 | 11:29am ET

The state of the natural gas futures market is bringing back some bad memories.

The benchmark March-April 2011 spread has surged about 75%, despite the fact that U.S. inventories of the fuel are at one of their highest-ever levels. And that hasn’t been seen since a little hedge fund called Amaranth Advisors collapsed after its huge bet on the March-April 2007 spread went bad.

“This is peculiar behavior given that supplies are currently building at a comfortable pace,” consultant Stephen Schork wrote yesterday, according to Bloomberg News. “We haven’t seen these particular spreads behave in such a manner since a prominent natural-gas trader morphed a $9 billion hedge fund, Amaranth, into a $3 billion fund in August 2006.”

At least one market rumor—reported by Dealbreaker.com—has prominent trader, Brian Hunter, on the hook for this volatility in the natural gas futures market. Hunter was responsible for the natural gas trades that cost Greenwich, Conn.-based Amaranth more than $6 billion and forced the firm to close its doors.

It is unclear what caused the rally, so it is possible that Hunter—or some other hedge fund with a large, bad bet on the March-April spread—could be the culprit. If the spread falls back, “then the fundamentals haven’t changed and we had a lot of people making a bet and it was a wrong bet,” Schork wrote.

Or, the BP oil spill in the Gulf of Mexico could be driving investor fears. “As this trade continues to decouple, then Deepwater Horizon is indeed a paradigm shift,” as traders anticipate an offshore drilling moratorium in the U.S., according to to Schork.


In Depth

Q&A: Brevan Howard’s Charlotte Valeur Talks Strategy

Sep 18 2014 | 11:18am ET

Charlotte Valeur chairs the board of Brevan Howard Credit Catalysts, an LSE listed...

Lifestyle

Hedgies Rock Out For Children's Charity

Sep 15 2014 | 8:40am ET

It's that time of year again—when hedgies trade in their spreadsheets for guitars...

Guest Contributor

Volkered: How Financial Sector Reforms are Creating Opportunities for Hedge Funds

Sep 16 2014 | 11:28am ET

New regulations have dramatically curtailed proprietary trading activity in investment...

 

Editor's Note

    Get A Sneak Peak Of The Alpha Pages

    Aug 25 2014 | 11:21am ET

    As many of you know, FINalternatives was recently acquired by the owners of Futures magazine, a firm called The Alpha Pages LLC. Today marks the soft-launch of a new sister site for both publications. As its name suggests, The Alpha Pages will cover all types of alternative investments, going far beyond the more well-known ones such as hedge funds and private equity. Read more…

 

Futures Magazine

September 2014 Cover

The London Whale: Rogue risk management

Credit default swaps brought down the London Whale and cost JPMorgan $6.2 billion. Here is how it happened.

The Alpha Pages

TAP July/August 2014 Cover

The Alpha Pages Interview: Senator Rand Paul

Senator Paul sat down in the debut series of the Alpha Pages Interview to discuss the broken tax code, regulation surrounding Bitcoin, and his plans for the 2016 Presidential election.