Private Oil-Marketing Firm Sinks, So Does Price of Oil: Coincidence?

SemGroup Fall May Be Tied to Oil Drop - WSJ.com

An interesting post in the Wall Street Journal raises the question whether or not a Tulsa, Oklahoma company that had been fiddling with both long and short positions could have impacted the price of oil. SemGroup's first bets were that the price of oil would drop. When that didn't happen, SemGroup took out equivalent long positions. Eventually SemGroup could no longer cover all of its bets and sold its futures account to Barclays Capital. "In the three days surrounding that transfer" to Barclays, crude futures "plunged $15.89" posted Stephen Schork, editor of the Schork Report, a newsletter tracking the oil market.

I've long held the belief that speculators are largely responsible for the meteoric rise of crude. News stories such as the one bolster my belief that this run-up has been artificial. The question becomes, how many other SemGroups are out there?

What frustrates me is this CNN article which highlights the fact that a bill designed to crack down on speculators may be held up in Congress because of 28 amendments being attached to it. It's highly likely that Congress will skip out on its month long recess in August without passing any measures. This delay could be costly as any legislation no matter how slight could send a powerful message to speculators to knock it off.

In all fairness, there are those who believe that speculators have very little to do with higher oil prices. One such post is titled Speculation My A$$ and can be found here. The article uses a report from Commodity Futures Trading Commission as evidence that speculators are guilt free. The CFTC's report came out around the same time that the General Services Administration admitted to a huge math error in the amount of hurricane relief supplies distributed in the wake of Katrina. The GSA originally estimated $85 million in supplies but that number was actually closer to $18.5 million. Oops. The moral of that story is to be mindful of any report that waves around a lot of numbers.

photo credit: Benjamin Earwicker