Sunday, July 27, 2008

Important news about crude oil

A couple of important events happening in the crude oil market. WSJ reported over the weekend SemGroup, a private company filed for Chapter 11 due to huge losses in the crude oil future market. Some wonder whether the recent sharp drop of crude oil prices is related to this event.

Over the past eight years, the Tulsa, Okla., private company bought or acquired oil pipelines, trucks and storage terminals across a swath of the oil patch stretching from east Texas to the Kansas-Nebraska border. At least 2,000 producers, big and small, sold their oil to SemGroup, which sent the crude onto refiners across the region. SemGroup filed for Chapter 11 bankruptcy protection on July 22, citing a $3.2 billion loss in the futures market. The top 30 creditors are owed as much as $1.4 billion, with as many as 5,000 others also due money, many from physical oil transactions for which SemGroup never paid.

Looks like higher margin requirements by the CFTC wounded SemGroup badly.

SemGroup in court documents this week attributed its losses to volatility in the commodities markets and tighter margin requirements, or the collateral a trader must post to support its positions.

According to SemGroup's bankruptcy-court filings, the company found itself without enough cash to cover margin calls and on July 16 handed its trading account with the New York Mercantile Exchange to Barclays PLC, a move that forced SemGroup to recognize losses exceeding $2.4 billion. A Barclays spokesman declined to comment. Another $850 million of unrealized losses were incurred through over the counter trading, documents show.

In another separate development, the CFTC also charged another company recently.

The CFTC charged Netherlands-based global trading fund, Optiver Holding BV, two of its units and three employees with manipulation and attempted manipulation of crude-oil, gasoline and heating-oil prices. The complaint charges defendants with 19 separate instances of attempted manipulation on 11 days in March 2007. In at least five of those attempts, the fund successfully caused artificial prices, the CFTC claims.

Though Democrats and Republicans could not agree to anti-speculation bills on Friday to set position limit, some other exchanges already implementing it in June.

ICE Futures Europe, which handles 15% of U.S. crude-oil benchmark contracts, agreed in June to impose position limits on these contracts.

Well, lambs have been sacrificed, the politicians found their way out. The CFTC has been maintaining that demand and supply is the main reason of the price run up prior to their interim report being published. I smelled something was not right and waiting for something to happen when the CFTC enforcement chief quit in July 10, 2008. It's all about political pressures.

(WSJ 10 July 2008)--In the midst of a political battle over its oversight, the nation's futures-market regulator is losing its enforcement chief to a private law firm.

Gregory Mocek, 46 years old, is leaving the Commodity Futures Trading Commission to become a partner in the energy- and derivatives-markets practice of McDermott Will & Emery, in its Washington, D.C., office. He joined the commission in 1998 and became director of the enforcement division in March 2002. He is due to leave in roughly two months.

It's fine that crude oil price is coming down but nobody is solving anything long term if we don't expand supply and developing alternative energy, it will come back to haunt everybody -- projection of US $ 200 oil may come true--when the world economy is humming again.

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