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

Creating An Offshore Hedge Fund Dream Team: The Seven Key Players

Jun 26 2015 | 6:47am ET

If you want to set up an offshore hedge fund, like any great team, you’re only...

Lifestyle

Hedgies Set to Compete in Wall Street Decathlon

Jun 8 2015 | 12:37am ET

The Wall Street Decathlon — a 10-event physical challenge that will crown “Wall...

Guest Contributor

6 Essential Principles To Balance Your Investment Risk

Jun 26 2015 | 10:07am ET

In this article, financial expert Greg Silberman explores how to hedge a private...

 

Editor's Note