The Hedge Fund That's Causing Lower Oil Prices

Bill Bonner reports:

"The gamble that went spectacularly wrong," trumpets the Sunday Times, referring to hedge fund Amaranth Advisors' recent sensational slip-up.

It seems that traders at the Connecticut firm were gambling that the difference between futures prices for natural gases in the summer and winter would continue to widen, as they had since the beginning of 2004.

But instead, they narrowed...sharply.... leaving the fund frantic for cash to cover its margin calls – those nasty but necessary requests by brokers to their clients, to pony up money on losing positions not paid for in full.

The bad bet left the luckless Amaranth with a hit of several billion – yes, billion – dollars and a year-to-date performance that has gone, apocalyptically, from a 22% gain to a 35 % loss, in a matter of days. To put the matter in perspective, Long Term Capital Management, whose collapse sent seismic waves through the New York Stock Exchange in 1998, was facing paper losses of $2.5 billion, when a posse of financial top guns – including the Federal Reserve – rode in to the rescue.

The high for crude oil could be in for a long time.