A local Nymex futures trader denied rumors Wednesday that he walked away from the natural gas futures trading pit two weeks ago with about $40 million in his pocket after monthly contract spreads (the price difference between monthly contracts) widened to unprecedented levels and the near-month contract soared to record heights.
Several sources told NGI about the large profits, and even a Nymex official discussed it as if it had happened.
“Somebody did make $40 million [two weeks ago before the March gas futures contract went off the board] and it was on the market outright,” said George Leide of Rafferty Technical Research. “They were long the April and short the March contract a couple of thousand times. They bid money on the move out in the spreads and the outright move up in the March contract. Then they got out of those positions.
“It was a sizeable position but you have to remember that the March-April spread normally would move a penny to 2 cents a day. Here, the March-April went to $2.65 in two days. He had no way of knowing that; he just happened to be long spreads, thinking they would go out a little bit and then there was a huge unprecedented move in the spreads and he was on the right side of them.
“The dollar amount may be a little different, but it’s not bull. The guy did have the positions and did make a load of money and most of the numbers bandied about were around $40 million.”
It certainly was possible for someone to make that kind of money in this market. On Feb. 24, March futures soared $2.531 in one day, and the following day March reached an all-time gas futures high of $11.899. That same day, March settled $2.993 over the April contract. Those kind of price moves and spreads would have enabled a trader or a company to win or lose millions.
At least two energy trading companies already have blamed the record market moves that week for their exits from the business. Houston-based Reliant Resources last week decided to call it quits in financial gas trading after it took an estimated $80 million pre-tax loss when it closed trading positions that were battered by high prices in late February (see Daily GPI, March 10). And Conectiv Energy, the trading arm of Washington, DC-based Pepco Holdings, Inc. (PHI), suspended trading in natural gas futures after taking a net loss of about $20 million during the same time period, although its gas trading losses were partially offset by gains in electricity trading (see Daily GPI, March 10).
In December, Reliant’s financial gas trading desk carried a spread position that included a short position for March gas deliveries and a long position for April gas deliveries, which were within the company’s authorized risk level. But the natural gas market changed dramatically during the last weekend of February, with the March contract rising $2.53/MMBtu on Monday, Feb. 24, from the previous Friday’s closing price. Reliant closed its positions on that day, resulting in its massive trading loss. The following day in Access trading, the March contract set a new record high for gas futures of $11.899. During regular trading that day, March matched the previous all-time high of $10.10, and by the day’s settlement the March-April spread reached $2.993.
The local, whose name is being withheld, apparently was on the direct opposite side of the market from Reliant and Conectiv and watched his profits soar as the spreads widened and the March contract rocketed higher. However, in an interview with NGI, he said those profits were quickly washed in the following days, and in fact, his profits never made it to the levels many had thought.
“There’s absolutely no truth to it,” he said. “In fact, I didn’t make any money last week nor the week before. I made some money that Monday but lost more in the following four days. And the gains didn’t even come close to the number they are talking about. It’s like urban folklore. But they are talking about me, and it’s annoying. It’s like saying you won the Pulitzer Prize when you really lost your job.
“How do these rumors get started? I don’t know. People want to believe this. But it’s the floor environment. A bunch of guys playing jokes on other guys. It was the type of move someone could make $50 million on. There you go.”
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