Energy companies unwound weather protection against a cold winter last week after an unexpectedly warm November. Enron and Element Re were seen to be two of the most active players in rehedging December through March exposure.
"Everyone puts on their positions in the summer before accurate weather forecasts are released. This year, there was a real bias for a cold winter. But then we got a warm November and now everyone is looking to reverse their positions," said one weather derivatives trader, who added that he had seen volumes increase from about two or three trades a day to 20 trades a day over the last week.
Repositioning was not as common last year because there was far less liquidity in the market and fewer firms with weather derivatives trading desks. Traders at Element Re and Enron declined comment.
