zman’s Energy Brain

oil, gas, stocks, etc…

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And you thought hedge funds were evil…

Posted by zmann on September 30, 2006

In the wake of the Amaranth scandal, I found this quote from September 14, 2006 extolling the virtues of hedge funds in the futures marketplace

 “I believe that there is absolutely no evidence that hedge fund participation in the natural gas futures market causes higher natural gas prices,” said Tom Saal, managing director of Commercial Brokerage Corporation.  Saal argued that hedge funds not only provide insurance to forward prices by adding liquidity, but he said they also reduce volatility by narrowing bid-ask spreads to within pennies rather than dollars.

While there’s some merit to the liquidity argument, the notion that hedge funds taking massive commodity positions (and they truely are massive given the record open interest in positions held by non-commercials by the CFTC) hasn’t had a pronounced impact upon natural gas prices is laughable. What’s this guy selling anyway?

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