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

Israeli Hedge Fund Harnesses Big Data

Jul 28 2014 | 8:10am ET

Apica Green is a multi-million dollar Israeli hedge fund that is based in Tel Aviv...

Lifestyle

David Yarrow On Growing His Hedge Fund And Shooting The Animals And People Of Africa - As A Photographer

Jul 23 2014 | 6:44am ET

While he’s always been a photographer, recent expeditions to Iceland, Ethiopia...

Guest Contributor

The Truth About Track Record Portability

Jul 24 2014 | 5:55am ET

The number of private funds converting to mutual funds has increased significantly...

 

Sponsored Content

    Northern Trust Helps Hedge Funds Navigate Derivatives Regulations

    Jul 8 2014 | 10:48am ET

    The surge in derivatives regulation is among the most complex challenges facing the financial services industry today. Northern Trust’s Joshua Satten recently spoke with FINalternatives to share insights into the challenges presented by new regulation and explore how the industry is responding. Read more…

Publisher's Note