Last week during a Commodity Futures Trading Commission hearing, hedge funds and regulators discussed the causality between the recent wild price swings of natural gas & oil and speculation of those commodities. John Arnold, managing partner of hedge fund Centaurus Advisors, cautioned regulators that imposing position limits on traders will push trading to from exchanges such as the NYMEX and CME, to illiquid over-the-counter markets. According to Reuters, Mr. Arnold believes this would result in increased costs for firms, such as airlines, looking to hedge future oil or natural gas prices.
For owners of futures contracts that are cash settled and do not take physical delivery of the commodity, Mr. Arnold believes limits are unnecessary. Moreover, he believes that such a regulatory measure, scheduled to take effect in September for NYMEX natural gas futures, should be rescinded immediately. Only limits on physically delivered contracts have bearing on prices, says Arnold.
John Arnold founded Centaurus Advisors in 2002. The hedge fund specializes in energy trading. Prior to founding Centaurus Advisors, Mr. Arnold headed up Enron's natural gas derivatives trading group. The firm’s flagship hedge fund is the Centaurus Energy LP.
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