Friday, December 14, 2012

Reuters Exclusive: Hedge Funds Down, Not Out in Tricky U.S. Natural Gas Market

The front futures are down another penny to $3.34.
I've commented that Reuters has some of the best generalist writing on natural gas, here's an example:
David Coolidge may still be the king of U.S. natural gas hedge fund managers but his $2 billion Velite Capital has made less than half of last year's money while one of his biggest rivals is headed for a loss in an unusually tricky year for traders.

Andy Rowe, former trader at Citigroup's (C.N) Smith Barney, also has a much smaller profit to show for this year than in 2011 at SandRidge Capital, another gas-focused fund in Houston.

In Westport, Connecticut, Todd Esse, once a star gas trader at Sempra, is trying to avoid the first annual loss at his Sasco Energy Partners -- which until last year was one of the best gas funds, with four straight years of gains.

Calling prices in the $40 billion gas market correctly is never that easy, given that it's one of the most volatile commodities after electricity.

This year has been particularly arduous, investors and market sources said. After making most of their money in the first quarter with a bearish bet on gas, the three funds spent the rest of the year trying to retain those gains with varying levels of success.

The three hedge funds declined or did not respond to requests for comment. Information on their returns was gathered from investors and market sources that track their performance.

Many funds were tripped up in the last two quarters by unexpected price swings caused by dynamic weather shifts in key U.S. consuming regions, which primarily drive demand for gas used in heating and cooling.
Prices have more than doubled to almost $4 per million British thermal units since hitting ten-year lows in April.

"It's not surprising to see returns down," said Chris Kostas, senior gas analyst at Energy Security Analysis Inc in Massachusetts, which conducts independent research on energy market trends.
"It's been difficult to make any kind of money with the sideways trade we've seen for much of the year," Kostas said.

Volatility itself is often welcome by gas traders as huge moves in their favor can result in millions, even billions, of dollars of profit, like those once earned by John Arnold, the market's biggest name ever.

Arnold, who retired in May after 17 years as a trader -- seven of them at former utility Enron -- returned over 300 percent to his Houston hedge fund, Centaurus, at his peak in 2006. But position limits placed on U.S. gas futures by regulators after the 2008 financial crisis crimped his trading style, forcing the 38-year-old billionaire to close shop....MORE