Thursday, August 20, 2009

Was that Hedge Fund Bet on a Triple in Nat. Gas Just a Bet on Cool Weather?

The Financial Times giveth (Hedge fund bets millions that gas price will triple) and FT Alphaville taketh away (or has the takeaway, or giveth away the inside scoop, I'm tryin' [and dyin' -ed] here). This reporter understands the biz.
From FT Alphaville:

A yet ‘undisclosed’ hedge fund has taken out call options at triple — yes triple — the price of today’s spot market price for natgas come winter.

Here’s the mysterious trade in question:
Natgas calls on Nymex

As the FT reports:

Traders took notice last week when the fund, as yet undisclosed, spent millions for the right to buy US natural gas at $10 (£6.03) per million British thermal units in January and February, up from Wednesday’s spot level just above $3 per mBtu.

We, however, are not exactly aghast.

While current fundamentals are indeed weak and all evidence points to a glut of supply in the US market due to an ongoing proliferation of shale production, there is another factor to natural gas prices that should not be forgotten: they are, and always have been, seasonal. And, come winter, the biggest determining issue — even with mounds of storage going into the season — will, as always, be weather.

Commodities-focused trading houses often even employ in-house meteorologists just to try and beat offically published weather forecasts for that reason....

...After all, on August 19 the World Meteorological Organization said the El Nino phenomenon — currently causing havoc in soft commodity prices but which generally has a dampening effect on natural gas prices as it brings warmer weather in the winter — might actually turn out to be weaker than first expected. Here’s the Reuters report for your consideration:
GENEVA, Aug 19 (Reuters) - An El Nino building up in the Pacific looks like being only a mild version of the phenomenon that has in the past brought devastation around the globe, the United Nations weather agency WMO said on Wednesday.

But the World Meteorological Organisation warned that even a weak El Nino — a phenomenon in which changing sea temperatures in the Pacific Ocean affect weather around the world — could seriously disturb normal climate patterns in many regions, bringing drought to some places and heavy storms to others. “What appears to be emerging is a weak to moderate El Nino, but one that will continue for the rest of this year and stretch into the first quarter of 2010,” senior WMO climate scientist Rupa Kumar Kolli told a news conference....
Some VERY sharp reporting by
Izabella Kaminska.