Extreme U.S. winter roils natural gas market, upends some trading strategies

Fri Feb 21, 2014 8:44am EST
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By Jeanine Prezioso

NEW YORK (Reuters) - When volatility returned to the U.S. natural gas market this winter after years of sleepy trade, the wild price swings created unexpected winners and losers.

The coldest winter in two decades boosted heating demand to all-time highs, quickly reduced stockpiles and prompted the kind of sweeping highs and lows that the market has not seen since shale drilling began flooding the United States with gas in 2009.

The flatlined trading of recent years lured trend followers and global macro funds to place one-way bets on declining prices which resulted in giant losses this winter as prices spiked.

Meanwhile, smaller, nimble hedge funds who correctly bet that winter gas supplies would quickly diminish as power generators scrambled to find last minute supplies, ended January

with some of their best gains on record.

The sharp price moves have called into question the conventional wisdom that natural gas would remain in a narrow range for months due to ample supply and have left a number of traders and analysts wondering if the volatility is here to stay.

U.S. natural gas futures prices gained as much as 50 percent this year, breaking the $6 mark for the first time since 2010, a far cry from the $2 seen in 2012.

Houston-based Goldfinch Capital, founded by Michael Maggi who worked with legendary gas trader John Arnold, finished January with a 21 percent gain, its best one-month gain since the 2009 inception of the fund, sources familiar with its performance said. The fund manages around $600 million.   Continued...

A man shovels snow in the Queens borough of New York, February 13, 2014. REUTERS/Shannon Stapleton