Last year when crude oil prices rose to $147.00 per barrel, many homeowners and businesses converted from oil to natural gas.
On Wednesday, U.S. gas futures fell to $3.049 per mBtu, the lowest in seven years, as the market remains oversupplied.
Now enters a large unknown hedge fund that spent millions buying $10.00 January and February call options. The options give buyers the right to purchase natural gas at $10.00 per million BTUs.
Why would speculators make such a play? $10.00 calls are way above the market. What is their crystal ball saying? They are betting on a spike in gas prices during the peak heating season. That would also cause an increase to those who last year converted to natural gas.
Some traders are skeptical about such a surge in prices, pointing out that January calls are selling for 5.6 cents. 10,000 contracts would cost $5.6 million. Even if the price rises anywhere near 10 cents, the company makes a neat profit.
If you are heating with natural gas, keep an eye on this market, especially going into the winter season.
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Reader Comments (Page 1 of 1)
8-20-2009 @ 1:23PM
e.krabs said...
Who is this hedge fund and what are they thinking?
No matter. I have a substantial stake in Conoco Phillips, and for what it's worth, I hope they're right. :D