Several hedge funds face big financial losses after wrongly predicting that oil and gas prices would rise as a result of Hurricane Gustav slamming into the Gulf coast of the US earlier this week.

As Gustav swept towards New Orleans on Monday, catastrophe experts were predicting insured losses of up to $7 billion (£3.9 billion) as offshore oil rigs faced destruction and the storm threatened energy supplies.

Commodities hedge funds saw the glum prediction as an opportunity, betting heavily, using the futures market, that prices would surge in the wake of the hurricane chaos.

In New York, crude oil leapt to $116 a barrel in the hours before Gustav hit the US coastline. On Nymex, natural gas futures rose 45.3 cents to $8.278 per 1,000 cubic feet. However, the experts, and the hedge funds, were caught out. By the time the storm was sending water lapping over New Orleans’s flood barriers, Gustav had been downgraded by the National Hurricane Centre to a Category 1 event. Oil eased to $105.46, with dealers soon speculating that it would fall to $100.

One hedge fund executive said: “There’s going to be a lot of commodities funds looking at big losses right now. Everyone thought Gustav would hit supply and push the price right up.”

Fluctuations in the oil price are thought to have contributed to yesterday’s closure by Ospraie Management, the hedge fund, of its $3 billion flagship commodities fund, run by Dwight Anderson, a market veteran.

Ospraie wrote to investors yesterday saying that the fund had fallen 27 per cent in August because of losses in energy, natural resources and mining stocks. It is thought that the fund was down almost 40 per cent over the whole year. In the letter, Mr Anderson said: “After nine years of striving to be a good steward of your capital, I am very sorry for this outcome.”

The fund’s demise is a further blow to Lehman Brothers, the struggling US investment bank, which bought a one-fifth stake in Ospraie three years ago.

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