Financial Times – The movement of crude oil and natural gas prices in the past two weeks has caught the energy market by surprise as hedge funds liquidate their positions en masse and cause a sudden change in the directions the prices, analysts say.
In the midst of a global credit squeeze, hedge funds have been cutting many of their bets on gas and oil, according to the latest data from the US Commodities Futures Trading Commission, the market regulator. This has resulted in oil and gas prices moving sharply in opposite directions.
Hedge funds and other speculators were in late July putting their money on rising oil prices while expecting natural gas prices to fall.
Those positions were paying off before the credit market turmoil as oil prices rose to an all-time high in early August and gas prices fell to a six-month low. But as the credit squeeze intensified, speculators in need of cash began to unwind some of those profitable bets even as the fundamentals still supported the original positions.
The CFTC data also show, more broadly, that hedge funds have been significantly reducing their exposure to the energy markets.
Adam Robinson, energy analyst at Lehman Brothers in New York, says hedge funds are deciding to book profits in the energy market in order to offset losses in the equity and fixed income markets.
