A large number of U.S. commodity desks were caught out trying to unwind short positions by the recent dramatic spike in natural gas prices, said dealers, and a hedge fund run by former Enron star trader John Arnold was rumored to be one of the biggest losers. Arnold, principal at Centaurus Energy in Houston, declined to confirm or deny the reports, noting that the firm does not comment on specific positions or its profit and loss account. "We are having a fantastic year," he said, adding that Centaurus is still the leading market maker in fixed price natural gas swaps. Indeed, rival traders said Centaurus is widely believed to have been up in excess of USD100 million prior to the rally, and therefore may still end the year with a net positive performance.
Centaurus, an aggressive natural gas trader with some USD250 million under management, was reportedly forced to liquidate short positions at the height of the rally when it received margin calls from brokers, according to a trader at another hedge fund.
In the recent rally, natural gas prices followed surging demand as a cold snap enveloped the Northeast. Contracts for January delivery spiked to a high of USD7.55 per million British thermal units on Dec. 10 from a low of USD4.87 per million Btus at the beginning of the month. Most desks had been short going into the fourth quarter because of relatively mild winter weather and robust gas reserves. "Everyone lost money in the move, the question is: how much?," noted the hedge fund trader.
An over-the-counter broker, who had heard the rumors about Centaurus, said the fund is still making markets as usual. The fund's traders are famously tight-lipped, he continued, adding "you would not be able to tell if they had gone out of business or made USD500 million."
"They are the market," noted a natural gas trader at a bank, who had also heard the rumor. "I don't know where they are laying off the risk," he added.
