we think that Amaranth was a situation waiting to happen, given the lack of federal oversight of energy markets by FERC and the CFTC. Although some pundits assert that “the market” is strong enough to absorb Amaranth’s ripple, we are deeply concerned that a single, somewhat small hedge fund in effect may have attempted to corner the natural gas market.The report attempts to estimate the huge trading positions that appear to have been necessary for Amaranth to have incurred such large losses, which far exceeded the amount needed to control the market price for natural gas in March - April 2007. Based on the little data that is available, McCullough concludes Amaranth's trading positions were consistent with a strategy to "corner" the natural gas market and demand monopolistic prices at a time when the amount of stored gas is lowest and the market is most vulnerable to manipulation.
The report also discusses the impact on consumer prices, rebutting the notion that this was simply a financial matter involving trading and speculation that did not affect prices. It highlights the continued lack of regulation of energy futures markets by FERC and CFTC due to exemptions won by Enron, and the need for effective market regulation.
Robert McCullough was one of the first analysts to identify market manipulation in the Western electricity markets in 2000 - 2001 at a time when officials were still claiming the California electricity price spikes and shortages were due to supply and demand rather than withholding of supply and market manipulation.