Natural gas prices have surged in just the last four weeks, as shown on the right hand side of the Finviz chart below.
The surge might not look huge in relation to natural gas's recent volatility, the speed of the reversal in the last month has caught tons of hedge funds off guard. Shorting natural gas became a crowded trade, and now there's a crowd of losers.
Morgan Stanley Smith Barney clients invested in a $640 million group of funds that have emerged as some of the biggest losers in the turmoil. Hedge funds known as "trend followers"—which chase market movements, rather than making fundamental investment decisions —also appear to have been hurt on bad trades.
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Five funds housed within Morgan Stanley Smith Barney, investment pools catering to clients of Citigroup Inc. and Morgan Stanley, have lost $120 million or more this year on energy bets, based on assets detailed in public filings.
Shorts against natural gas became so popular lately that the overall speculator position for natural gas futures became net-short on May 4th, based on Commodities Future Trading Commission data.
Morgan Stanley Smith Barney funds were far from alone in their losses, other players hit by the natural gas whipsaw include Sandridge Capital, The Bristol Energy Fund, Superfund US according to the Wall Street Journal.
Personally, we're bullish on the U.S. natural gas industry even if undecided on the near-term prospects for natural gas prices. Luckily, the stock we hold related to natural gas, Chesapeake Energy (CHK), rallied recently with gas prices as well.
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