June 30, 2006

Major Hedge Funds Corner Energy Market

Bleak futures are driving hedge funds to buy and sell crude oil, in order to show some figures of profit to their investors. With energy being the most sought-after commodity, hedge funds are scrambling to get their fingers deep in the money-spinning oil wells. But the going is not as smooth as oil, with major players like Goldman Sachs and Morgan Stanley cornering a large part of the market. A key deciding factor in oil trading is the ability of hedge funds to have the necessary storage space, especially in the physical crude markets.

Newcomers are not too welcome, going by the attempts of the hedge fund MotherRock LP to sell crude to Taiwan’s state oil firm, Chinese Petroleum Corporation (CPC) that fell short of expectations. Inside information from CPC alleges that the company was not in favor of the deal because of the fund's relative inexperience in oil sales. This, in spite of the fact that MotherRock is among the top five market makers in terms of volume traded, on the NYMEX natural gas market. NYMEX is the world’s largest energy futures market.

Meanwhile, the industry bigwigs are consolidating their positions through various acquisitions. Goldman Sachs’ private equity arm and Kelso & Co. jointly bought out Coffeyville Resources LLC, a refiner based in Kansas City last year. Morgan Stanley, besides reaching an agreement to acquire TransMontaigne Inc., an organization that markets oil products, is also in talks to buy The Heidmar Group, which ships oil and refined products across the world.

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