Goldman Sachs trade on natural gas went wrong in Q2
Natural gas is the wild west of the energy market. For a commodity that's so critical, the volatility and longer-term price swings are harrowing.
More recently, the market has been relatively tame. 2017 started out with a drop to $2.50 from $3.80 but since March it's been in the $2.80 to $3.30 range.
Goldman Sachs wasn't making directional bets on overall gas but a spread trade at different delivery points. According to the WSJ, the thesis was that a new pipeline in Ohio and Pennsylvania would relieve the glut in that region and help prices to rise. Instead, the pipeline ran into issues and prices fell further.
That quickly turned into a $100 million quarterly loss and was part of the worst-ever quarter for the commodities unit.
One lesson is to never bet on a pipeline completion in the current environment, where laying a pipe is equivalent to a war crime in some circles. Second, never stake a year, quarter, month or day on a natural gas trade.
