More detail about Semgroup. To all of the fools who think that this is still supply/demand, wake the fuck up.
SemGroup Fall May Be Tied to Oil Drop
By BRIAN BASKIN
July 24, 2008
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. SemGroup officials couldn't be reached for comment. A spokesman for Barclays declined to comment.
The firm had $14.7 billion in revenue as of 2006, the last year for which there are public records. Its publicly traded subsidiary, SemGroup Energy Partners LP, operates about 1,200 miles of oil pipelines and controls 15 million barrels of oil storage capacity, including seven million barrels at Cushing, Okla., a storage hub closely tracked by the oil market.
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.
SemGroup likely played a supporting role in oil's fall, said Nauman Barakat, senior vice president at Macquarie Futures USA in New York.
The initial plunge came on July 15, as Federal Reserve Chairman Ben Bernanke told Congress that the U.S. economic downturn would prove more persistent, and potentially more severe, than initially thought.
Oil prices fell again the following day, immediately after the Energy Department reported a surprise build in U.S. crude stocks, underscoring that demand is weakening.
SemGroup's contribution would have been to remove a steady source of upward momentum, wrote Edward Meir, with MF Global.
"SemGroup is not helping the bullish cause, as with the firm now bankrupt, whatever short-covering that was done...is now behind us," Mr. Meir wrote.
"We know SemGroup was in trouble, the only question is when another shoe drops," he said.
Separately, Reuters reported that a group of SemGroup LP creditors on Wednesday raised the prospect that unauthorized energy trading may have caused the $3.2 billion loss that sank the firm.