Posted on 07/23/2008 10:58:39 PM PDT by BurbankKarl
The collapse this week of SemGroup LP, a little known private oil-marketing firm, may have played a role in crude oil's 14% drop over the past 10 days.
The Tulsa, Okla., company filed for Chapter 11 bankruptcy protection Tuesday, citing among other financial woes a loss of at least $2.4 billion in crude-oil futures. Changes in its hedging strategies coincided with big moves in oil recently.
The company had taken out short positions, or bets that crude prices would fall, as a hedging strategy for oil it intended to move through a subsidiary's pipelines and sell to refiners, according to an affidavit filed in Delaware bankruptcy court by Terrence Ronan, SemGroup's senior vice president, finance.
Then, when oil prices rose, SemGroup moved to "cover" its short positions by taking out equivalent long positions, or bets that oil prices would rise.
Eventually, SemGroup was unable to put up collateral for its swelling bets and sold its futures account to Barclays Capital on July 16, according to the affidavit.
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One theory making the rounds in the market is that as SemGroup's long positions snowballed, so did the oil rally. SemGroup's rapid exit from the market removed a force for upward momentum when the market, under siege from negative U.S. economic indicators, needed it most.
"In the three days surrounding that transfer" to Barclays, crude futures "plunged $15.89...thus, with SemGroup removed from the market, crude oil has been free to fall," wrote Stephen Schork, editor of the Schork Report, a newsletter tracking the oil market.
(Excerpt) Read more at online.wsj.com ...
Anyone else smell a rush to sell off oil futures while the gettin is good?
More supply less demand.
High cost induced the average customer to seek less.
We will never see crude below $90 until we produce more.
I tend to agree. But then, high prices are driving the public perception that we need to produce more and, in the United States, exploit the untapped resources we have. If prices were to fall back to their original low levels, no one would care.
Didn’t mean to suggest we would. But i’m thinkin that speculators with weak knees and small profit margins, might want to dump their purchases to cut their losses as oil continues to sink towards $100 a barrel...and in turn, cause a “comparative” run...>Bo)
Oil's higher than it should be based upon market fundamentals, and when it drops, it'll drop lower than it should be based on the same criteria. It may eventually find the proper level, but it's likely to overcorrect first.
Besides, if it went down to $94 a barrel...still way high, but still in all, that’s another $30 a barrel less than the present price.
I think a lot of people would be happy to see oil back in the double digits per barrel, and still be demanding that we drill for our own oil, and still want to buy hybrids and looking forward to other new power sources.
They are obviously not very good at hedging. Seems to me, they don’t even understand what it means!
It’s good to see leeches die....
Watch what happens to oil prices if I’m right, and most people stay close to home for the Labor Day weekend too.
>Bo)
Lots of people are mad as hell about gas prices, and are staying home for “Staycations” and feathering their nests with a big screen TV, or new furniture, new matresses, a home improvement project, all that use little gas, and less than half of what they would have spent on a traveling vacation...
Buying the grandparents a PC with a webcam, and having an in town relative teach them how to do an easy videoconference call to “visit” with the out of town grandchildren any time they want without a road trip involved.
--- Arthur C. Clarke
Correction: it was Larry Niven, not Clarke.
$70 hedges turned into $140 hedges.
Horse hockey!
Your very words were uttered by “EXPERTS” during the Carter era.
Gee whiz, do ya think that oil prices might be subject to speculative influence, maybe?
*I* think (from watching this nonsense from afar )
that oil is going to be at UNDER $70/BBL before Christmas.
Call me a short-seller. I betcha!
Nuthin like an optimistic point of view. <;oD
I’ll be one of those people...though I might not buy a hybrid. Still, I’ve discovered car pooling is not all that horrible.
Whoever wrote this is a kook! Covering short positions would make the market go UP if at all, not down.
True. Plus it is nutty ignoranace to state that covering short positions could cause downward pressure on a market. It's just the oposite.
One down, 3,749 to go......
What a profound concept. You must have discovered a new economic law. The author of the article certainly didn't understand it.
Proof positive that playing both sides of the street is an excellent way to get run over. :-)
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