A team of traders at Goldman Sachs made $100 million betting on natural gas, and it fueled a huge comeback for the Wall Street bank (GS)


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Goldman Sachs racked up $100 million in the first half trading natural gas, thanks to trades made by Shane Lee, a Calgary-based trader, and his team, according to people with knowledge of the matter.
Natural gas prices set records in early January when below-average temperatures accompanied by a snow storm dubbed the Bomb Cyclone led to soaring demand for the commodity, according to Natural Gas Intelligence.
Goldman’s first half performance was a reversal from 2017, when natural gas bets in the second quarter went so poorly that the commodities-trading department turned in its worst annual performance in the bank’s history as a public company.
This year’s gains helped push Goldman Sachs back into the top spot for commodities trading on Wall Street in the first half, according to industry consultant Coalition.

Goldman Sachs has bounced back from last year’s commodities rout.

The investment bank racked up $100 million in the first half trading natural gas, according to people with knowledge of the matter. The money was made by Shane Lee, a Calgary-based trader who used to work at failed hedge fund Amaranth Advisors, and his team, the people said.

The performance was a reversal from 2017, when natural gas bets in the second quarter went so poorly that the commodities-trading department turned in its worst annual performance in the bank’s history as a public company.

Commodities trading, once one of the bank’s most vaunted businesses, saw revenues plummet 75% to less than $300 million last year, Bloomberg has reported. That was down more than 90% from a high of $3.4 billion in 2009.

This year’s gains helped push Goldman back into the top spot on Wall Street in the first half, according to industry consultant Coalition. The bank shared the title with JPMorgan and Morgan Stanley after dropping out of the top tier last year.

Goldman has a rich history in commodities trading that began when it purchased the J. Aron trading house in the early 1980s. A generation of Goldman leaders got their start there, including chairman Lloyd Blankfein and securities division co-head Marty Chavez.

A Goldman spokesman declined to comment, and the firm wouldn’t explain the details of how Lee made the money. Lee didn’t respond to a request for comment.

Moving gas through the nation’s pipelines

Natural gas traders watch prices in local markets like the Northeast or the West, and look to benefit from pricing abnormalities or the complexity of moving gas through the nation’s pipelines. They use futures and forwards, swaps, and even take physical delivery of the commodity to capture price differences, say between a delivery point and the Henry Hub in Louisiana, the industry benchmark.

Changes in weather during winter and early spring typically spur activity in the natural gas market as producers and consumers adjust stockpiles. To prepare for the activity, traders can stock up on physical inventories, or tilt their portfolios in certain ways using financial instruments. While there was no suggestion among people familiar with the trade that the bank was flouting rules against …read more

Source:: Business Insider

      

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