The mysterious SemGroup

No one is exactly saying that this little-known private oil-marketing company played a direct role in the rise - and recent fall - of oil prices, but there are some interesting coincidences. One theory, according to the WSJ, is that SemGroup in effect manipulated the oil market by going back and forth on significant short and long positions. The betting supposedly became so large that the company couldn't put up the needed collateral and wound up selling its futures account to Barclays Capital. The Tulsa-based company filed for Chapter 11 bankruptcy, citing a loss of at least $2.4 billion in crude-oil futures.

"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. The linkage isn't entirely clear. Some traders note that SemGroup's activity dried up well before July 16, and there is no indication of what Barclays did with SemGroup's positions once it took control. Oil prices have also continued to drop since last week, falling an additional 3.8% from the settlement price on July 17.

But wait, it gets even more interesting. A group of SemGroup creditors say that unauthorized energy trading may have caused a $3.2 billion loss that sank the company, according to Reuters. There's not much backup on those suggestions, but SemGroup's losses included $290 million owed to the company to cover losses incurred by a trading company. That trading company happens to be owned by SemGroup's co-founder and former chief executive, Thomas Kivisto. Kivisto was placed on administrative leave shortly after SemGroup's account was transferred to Barclays. Obviously, there is a lot to sort out.

Meanwhile, oil prices took another sharp fall, dropping nearly $4 a barrel, to $124.46. That's the lowest close since June 4. Explanations for the steady price decline center not on market manipulation, but on the fundamentals - mainly a drop in demand for three straight weeks. Forecasts of more economic problems have also fueled the sell-off. It looks like we’ll see further drops in gas prices.

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Mark Lacter
Mark Lacter created the LA Biz Observed blog in 2006. He posted until the day before his death on Nov. 13, 2013.
Mark Lacter, business writer and editor was 59
The multi-talented Mark Lacter
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