Natural Gas Volatilty a Lesson in The Reversal of Fortunes

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Natural gas margins soar with Glencore, Gunvor, Trafigura and Vitol all told to deposit “hundreds of millions” of dollars of margin to cover exposure to rising gas prices according to Reuters

Among commodity trading house that have been told to deposit, calls are forcing the companies to tie up more capital.

The firms have long-term contracts to buy US LNG and deliver it to Europe and Asia, some of them running through 2041. They often sell gas futures in Europe to hedge out the trade. They’re likely still profitable on an ongoing basis but hold $30 billion worth of shorts, according to the report.

In a worst-case scenario, they wouldn’t be able to fund the margin on the trade and would need to close it out. In that case, they would have to buy back the shorts in what could be an epic squeeze.