Speculation About Speculation: Does A Hedge Fund's Collapse Pin Oil Prices On Them?

Did the collapse of a little-known private oil-marketing firm, SemGroup, play a roll in oil's 14% price drop over the past 10 days? The Wall Street Journal thinks it might have:

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.

Read the whole story here.

Comments

[dadw5boys]

All around the world there has been conservation going on.

not in the USA so you really don't understand. Japans use of oil dropped 15 % over the last 10 years so any increase in oil by China has already been offset.

The price of a barrel of oil should be $55.00 to $65.00 all the rest is going to Hedge Funds who are passing the oil furtures contracts around 2 and 3 times and the prices increase each time.

[leduck]

wow....
and what happens when the price starts to rise again?
we tar and feather the speculators?
and when the price keeps rising long term after that, then who do we target?
when Bush and Cheney are gone..., and the price keeps rising, then who do we target?

This is mostly a function of geology folks
casting stones at speculatros may be fun, but it accomplishes nothing

[darthdarcy]

They suffer least, who suffer what they choose..!

A pox on all their houses...!

[leduck]

Frank Burns is still convinced all of this is about speculation
I think he should go to Iraq and fight "t0o defend freedom"

[Erdgeist]

The economist Dr. Ravi Batra sums up why the price of oil has risen so much even though supply has more than kept up with demand. The reasons for the sharp rise are the following: 1) oil company mergers (2500 of them) leading to a monopoly position (notice the high profits); 2) speculation (Hedge funds): 3) government corruption.

http://www.youtube.com/watch?v=hvC7lbNmFLQ&feature=related

[leduck]

"even though supply has kept up with demand?"
where'd this economist get his/her degree?
a cracker jack box?

[alfrede]

Hi,

Can we find out who has invested in these hedge funds?

Where is the hedge fund money coming from?

What are the names and addresses of the people running these hedge funds?

Is any of this public information?

[dadw5boys]

Last we heard was they moved to the Caymen Islands and were running toi dark pools with help from Swiss Bankers new computer program that lets the Hedge Fund stay hidden so they can not be regulated.

[anastasiabeaverhousen]

But but but......grampy said it was the prezdint when he lifted the ban on offshore drilling........grampy was wrong again?????? Gollygeewhillikers.

[Opus007]

It was a trifecta and off shore drilling had nothing to do with it!
It was Al Gore's bold statement, Boon Pickins -an oilman- with his wind energy plan and the American public willing to cut their driving drastically to starve the gravy sucking pigs at Big Oill.

I have cut my driving drastically. I will not give Big Oil one extra dime.

[wsblake]

Part of it is speculation- but that's just future marketers hedging their bets. That speculation amounts to maybe 25 dollars at most of that 150. dollar peak two weeks ago. You will never see oil below 120. a barrel again. And that's because of basic supply and demand- and that is never changing. But there is a huge silver lining here if we can finally come together as a nation. All we need to do is make a federal highway speed limit of 60mph; give tax credits to mass transit users; subsidize rail service. We don't need to drill and we don't need alternative fuel sources like corn- although solar and wind are necessary for the future. If the government just forced automakers to increase MPG standards by 1 mile per gallon, it would be the equivalent of all the oil in ANWAR! But of course you'll never hear that from the Rethugs.

[vippy]

I hope if FORD Motor CO. is importing the smaller cars from Europe then they had better leave the 45 to 66 mpgs in the engines too. Imagine how much gas we could save if we had the same
standards as Europe. But no, our congress passed the new energy bill a couple of months ago
which calls for 35 mpgs by 2020. Now that is ridiculous and they were proud of it too.
That right there tells me that they are not interested in making less money by being sensible!

[Chavez08]

Wuh??? The price of gas started dropping now that we're closing in on an election cycle???

I've never heard of that!....

[Egalitare]

There might be an attempt to "eat a short term loss" to keep gas prices down until Election Day, but there are a couple of very firm "floors" that are now below the price of crude: the Canadian "Tar Sands" and Deep offshore production. Both processes are so expensive relative to other sources that if crude goes below some point (I'm guessing below $100, but I'm not expert) those workers get layoff notices until the price goes back up.

I'm not denying the impact of speculation, but I don't think CNBC is being completely honest with the public when it suggests that crude could dip to $83/bbl.

[Viper]

Deep oil... you mean like the North Seas.. they have been pumping since 18 bucks per barrel. Oil sand tar since $30 a barrel.

What is happening is John McCain has won on the oil/energy issue by embracing offshore drilling and more nuclear. 77% of the voters support that position.

He has completely knocked off more than half of Obama's lead even given Obama successful trip ( and in some cases his 15% lead dropped by 13% such as Minnesota.).

Democrats .. snatching defeat from the hands of victory.


Our congress needs to compromise with the repugs on this issue and take it off the table quickly. More money for altenative energy in exchange for offshore drilling and the opil must be sold in U.S.

If it comes to food on the table, the value of the dollar, flying on a plane and driving their cars,boats, 4 wheelers and Obama, you will not like the results.

Its hard to argue environmental reasons with no platforms leaks in 40 years, when there are 2200 U.S. platforms in the Gulf and 10 other countries drilling out there anyway. not drilling means an increase in the use of very dirty clao.. and thats happening now. CO2 is going up not down as people move to lower cost dirtier coal.


Regards

[EinChicago]

Egalitire, your estmates are ridiculously high. Deep oil is profitable at $20 per Bl, Tar sands are profitable at $30 per vbarrle and even Rocky Mountain shale oil is profitable at $35 per bbl.

[trollsbwild]

The Enron loophole needs to be closed.

PG's a POS!

[oogabooga]

Trading futures allows you to buy and sell stuff at a later date, I believe. Southwest Airlines bought oil futures at low prices, I believe. So futures have a purpose but are very speculative. The problem is the very young traders are given free rein by their bosses and they get carried away, eventually losing huge amounts of money. This has happened time and again. There needs to be supervision of these young people and their companies and there needs to be clearly defined and fair rules.

[KillTheMessenger]

Most traders trade on mathematical models, not on divine inspiration. The problem is that the models are wrong, not some "young people without supervision". And because most models use similar criteria and have similar dependencies, they all go belly up at the same time.

[UnknownSoldier]

I'm learning about Money Management and it seems to be the key from going belly up in the Futures market

[EinChicago]

Hogwash. I am a financial services lawyer in chicago in a building adjacent to the CBOE in a firm that specializes in financial markets. I can tell you from experience, that the majority of rainbow brites (the garishly jacketed traders) are not using models; they're high school educated former runners flying by the seat of their pants and trying to stay one step ahead of teh cowboy day traders. You give the futures markets way too much credit.

[Viper]

You are correct, but what you had in the past beore the Enron loophole and deregulation was that suppliers and users were only allowed to be buying the oil.... Now we have non users buying/bidding it up who are not users, and a barrel once sald 2-3 times before its use is now being sold 20-30 times. Morgan Stanley now owns more heating oil than all the suppliers on the East Coast.

These non users meant additional dollars could flow into the market and rise the price. You will note than when oil goes down, the stock makrte can go up dramatically. Thats because money flows out of oil into the stock market.

Now when Google stock is bid up... its not like when a commodity on a momendum play is bid up.

In the Google case.. no one get hurts... in the case of oil, people lose their jobs, planes dont fly, the cost of food goes up, people go hungry.. and wealth is transfered from the masses to the few.

Regards

[dadw5boys]

IF Airlines buy oil futures then they are using their money to make a profit they are not buying fuel for their planes.

Oil must be refined into a usable fuel like kerosene or desiel for airline with additives.

The buying and selling of Oil Futures Contracts are now being used and trnsfered several time between owners of these DARK POOLS offshore. Each time they trade the contracts they raise the prices of those contractrs.

[booker52]

My heart does not bleed for these folks. There shouldn't of been any speculation on oil in the stockmarket to begin with. Alot of people have been hurt by the rise in oil prices.

[KillTheMessenger]

The rise in oil prices is not a consequence of speculation. The speculation is a consequence of the rise of oil prices.

[darthdarcy]

Hahahahaaaa...

[olephart]

You've smoked too many of your mother's cigars.

[CFAmick]

Hedge funds need to be regulated as equally as the other equity markets. My theory? Key members of Congress have a lot of money invested in them.

[DXM]

Or, more likely, key members of Congress have gotten huge amounts of campaign funds from them.

[ErnestineBass]

If you want to find out who's getting contributions, how much and from whom, I recommend this site.

http://www.opensecrets.org/

Click on "Members of Congress". Quite illuminating...

[CFAmick]

Without a doubt. However, in all likelihood, campaign contributions = 100ks, personal investments = millions.

[dadw5boys]

Your theory is correct plus the banks that help the HEDGE FUNDS stay hidden in offshore operations like the one in the Caymen Islands.

Bush cut the SEC'S BUDGET so I don't see how they can regulate anything here but offshore can get really espensive too.

[Tom95134]

Sounds to me like a chihuahua trying to run with the big dogs and getting stepped on.