$15 Billion Short Position On Crude Oil

[Pakboong]

I stumbled onto a bit of information that hasn't gotten much press at all and am confused as to why. A company called SemGroup took the second largest commodity loss ever at $3.2 billion from a short position on crude oil of at least $15 billion. A Tulsa Oklahoma based energy company now bankrupt after a margin call last week is thought to have single handedly caused the sudden $20 dip in crude oil prices.

[lannarebirth]

Covering a huge short position would cause a sudden rise, not a sudden fall.

[DocJD]

I just read the article on Yahoo. Correct me if I'm wrong: it sounds like they'd been shorting oil futures in an attempt to hedge against their own business requirements for oil. Is that right? Is that what they were trying to accomplish?

Covering a huge short position would cause a sudden rise, not a sudden

That's what I was thinking as well.

Edited July 30, 2008 by DocJD

[Pakboong]

I just read the article on Yahoo. Correct me if I'm wrong: it sounds like they'd been shorting oil futures in an attempt to hedge against their own business requirements for oil. Is that right? Is that what they were trying to accomplish?

Covering a huge short position would cause a sudden rise, not a sudden

That's what I was thinking as well.

I thought the same to be true also. Hence the post for othe opinions. The link below gives the whole story.

http://www.silverbearcafe.com/private/7.08/coincidence.html

[VegasVic]

Covering a huge short position would cause a sudden rise, not a sudden fall.

You are correct Lanna Pak usually stumbles upon some good stuff, but this time he apparently read an article by a grossly misinformed journalist! Sem and a few others did indeed have to cover some very large short positions, but that covering is what caused the rise to $147/bbl, not the recent drop back to the low $120's. Watch for oil to test the $122/bbl support over the coming weeks, if it falls below that support for a couple of trading sessions then $100/bbl oil could be with us very soon!

[Pakboong]

Covering a huge short position would cause a sudden rise, not a sudden fall.

You are correct Lanna Pak usually stumbles upon some good stuff, but this time he apparently read an article by a grossly misinformed journalist! Sem and a few others did indeed have to cover some very large short positions, but that covering is what caused the rise to $147/bbl, not the recent drop back to the low $120's. Watch for oil to test the $122/bbl support over the coming weeks, if it falls below that support for a couple of trading sessions then $100/bbl oil could be with us very soon!

Vic, your thoughts were the same as mine when I first read the article After a couple of re-reads, I looked into Ted Butler's other articles. He is a silver analyst and a bit extreme but doesn't come across as stupid. Many of his thoughts make sense.

[thaihome]

I just read the article on Yahoo. Correct me if I'm wrong: it sounds like they'd been shorting oil futures in an attempt to hedge against their own business requirements for oil. Is that right? Is that what they were trying to accomplish?

...

I have to admit, shorting has always sort of confused me, but it does not make sense for an oil user to short in order to hedge a business requirment. Isn't shorting taking a bet prices will fall? Why would a user bet that except as speculation? I guess they could be coevering a long postion, but certainly not at that scale.

TH

[DocJD]

I have to admit, shorting has always sort of confused me, but it does not make sense for an oil user to short in order to hedge a business requirment. Isn't shorting taking a bet prices will fall? Why would a user bet that except as speculation? I guess they could be coevering a long postion, but certainly not at that scale.

TH

See!? That's what's confusing me too. If they needed oil as an input then I would have thought the answer would be to take a long position in order to hedge against rising oil prices. Can anyone explain why they sold short, perhaps in not-too-technical terms? Thanks.

[ZZZ]

The SemGroup is (was??) a oil storage and trading company, maybe the shorted to cover the value of their oil in stock.

Looks like they got their position wrong by a few zeros as the position was in the order of 100Milj barrels!!!!

[VegasVic]

Covering a huge short position would cause a sudden rise, not a sudden fall.

You are correct Lanna Pak usually stumbles upon some good stuff, but this time he apparently read an article by a grossly misinformed journalist! Sem and a few others did indeed have to cover some very large short positions, but that covering is what caused the rise to $147/bbl, not the recent drop back to the low $120's. Watch for oil to test the $122/bbl support over the coming weeks, if it falls below that support for a couple of trading sessions then $100/bbl oil could be with us very soon!

It looks as though oil has indeed breeched the $122/bbl support! Look for the price to drop steadily over the next 30 days towards the $108/bbl support level, if $108/bbl gets taken out then we will see sub $100/bbl oil sometime in September. As oil drops so too will gold, and the U.S. dollar will rise vs. the Euro,Yen and Pound. I have attempted to express what is likely to occur on a number of different threads here on TV, it is still not too late to short oil and gold and go long the dollar

[lannarebirth]

Covering a huge short position would cause a sudden rise, not a sudden fall.

You are correct Lanna Pak usually stumbles upon some good stuff, but this time he apparently read an article by a grossly misinformed journalist! Sem and a few others did indeed have to cover some very large short positions, but that covering is what caused the rise to $147/bbl, not the recent drop back to the low $120's. Watch for oil to test the $122/bbl support over the coming weeks, if it falls below that support for a couple of trading sessions then $100/bbl oil could be with us very soon!

It looks as though oil has indeed breeched the $122/bbl support! Look for the price to drop steadily over the next 30 days towards the $108/bbl support level, if $108/bbl gets taken out then we will see sub $100/bbl oil sometime in September. As oil drops so too will gold, and the U.S. dollar will rise vs. the Euro,Yen and Pound. I have attempted to express what is likely to occur on a number of different threads here on TV, it is still not too late to short oil and gold and go long the dollar

Like bingobongo you express themes Vic. Like Gold, it's about $150 off it's highs but still over $200 above where you were saying it had topped out previously. So far you haven't got the direction or the year it will happen right, let alone calling the year, month, day and hour (see chicken little thread). when one is non specific, it's easy to wander by occasionally and blow a lot of hot air (see bongo). That doesn't help anyone make money, and in fact they could lose a whole lot if they were to pay much attention to it. If it's just a general warning of prices being out of whack, then I would agree with you, but I'm sure you know prices can stay "wrong" for a long, long time.

Edited August 5, 2008 by lannarebirth

[Kf6vci]

I just read the article on Yahoo. Correct me if I'm wrong: it sounds like they'd been shorting oil futures in an attempt to hedge against their own business requirements for oil. Is that right? Is that what they were trying to accomplish?

This sounds like good old speculation. If they anticipate rising prices, they buy the future. If they expect falling prices, they sell the future. To close a position, they would have to do the opposite, like buy back when they had sold or sell when they had bought.

Haven't read the article yet. But if they had waited a bit longer, then they might be way in the money

[britmaveric]

Trends heading towards under $100 - think that's blatantly obvious.

[joncl]

Covering a huge short position would cause a sudden rise, not a sudden fall.

I concur ..

[lordofdelusion]

Covering a huge short position would cause a sudden rise, not a sudden fall.

You are correct Lanna Pak usually stumbles upon some good stuff, but this time he apparently read an article by a grossly misinformed journalist! Sem and a few others did indeed have to cover some very large short positions, but that covering is what caused the rise to $147/bbl, not the recent drop back to the low $120's. Watch for oil to test the $122/bbl support over the coming weeks, if it falls below that support for a couple of trading sessions then $100/bbl oil could be with us very soon!

It looks as though oil has indeed breeched the $122/bbl support! Look for the price to drop steadily over the next 30 days towards the $108/bbl support level, if $108/bbl gets taken out then we will see sub $100/bbl oil sometime in September. As oil drops so too will gold, and the U.S. dollar will rise vs. the Euro,Yen and Pound. I have attempted to express what is likely to occur on a number of different threads here on TV, it is still not too late to short oil and gold and go long the dollar

Buy the ETF "DUG" Oil short fund. Got in a couple of weeks ago and just increased my position today. $100 a barrel is possible soon. Then run!! This is a trade not a long term position.

[britmaveric]

$50-$75 is where its heading.

[VegasVic]

Covering a huge short position would cause a sudden rise, not a sudden fall.

You are correct Lanna Pak usually stumbles upon some good stuff, but this time he apparently read an article by a grossly misinformed journalist! Sem and a few others did indeed have to cover some very large short positions, but that covering is what caused the rise to $147/bbl, not the recent drop back to the low $120's. Watch for oil to test the $122/bbl support over the coming weeks, if it falls below that support for a couple of trading sessions then $100/bbl oil could be with us very soon!

It looks as though oil has indeed breeched the $122/bbl support! Look for the price to drop steadily over the next 30 days towards the $108/bbl support level, if $108/bbl gets taken out then we will see sub $100/bbl oil sometime in September. As oil drops so too will gold, and the U.S. dollar will rise vs. the Euro,Yen and Pound. I have attempted to express what is likely to occur on a number of different threads here on TV, it is still not too late to short oil and gold and go long the dollar

Like bingobongo you express themes Vic. Like Gold, it's about $150 off it's highs but still over $200 above where you were saying it had topped out previously. So far you haven't got the direction or the year it will happen right, let alone calling the year, month, day and hour (see chicken little thread). when one is non specific, it's easy to wander by occasionally and blow a lot of hot air (see bongo). That doesn't help anyone make money, and in fact they could lose a whole lot if they were to pay much attention to it. If it's just a general warning of prices being out of whack, then I would agree with you, but I'm sure you know prices can stay "wrong" for a long, long time.

I would have to disagree with you there lanna, Bingo (and to a slightly lesser degree lao po) generally just reposts sensationalistic headlines, while I have been very public and forthcoming about what I have bought (or shorted) at the time I took a particular position. My two posts on this thread are a good example, I have made public exactly what I think will be occuring in the markets (not just some theme), and as oil sinks to $115 today it appears that I was correct. Since you like to go back and preview my posts then please by all means go back and look at the ones where I tell the good folks here to short oil (when it was in the upper $130,s) and short gold (when it was around $980/ounce) and go long the U.S. dollar. You are correct on one item and that is that last August I did feel that gold would be at or below $670/ounce a year from then and as we know it is around $850/ounce and dropping currently. Of course back then no one could have seen oil prices doubling in less than a year without any appreciable increase in worldwide demand! Now that the oil bubble is bursting you will indeed see gold come down to the levels that I forecasted, so while my prediction of what gold would be "a year from now" last August might have been incorrect as far as exact timing, it will prove to be corect over the next 6 months As far as helping people make money, obviously if they heeded my advise and shorted oil and gold (which they can still do and make a small fortune) and went long the dollar they would be very well off. Also hopefully I gave pause to anyone thinking of putting money into gold when it was around $1000/ounce and all the gold bugs here were claiming that $1500/ounce was jusrt around the corner and everyone better get in now, well at that time I was the voice in the wilderness and was verbally assulted by the goldbugs on a regular basis, however now that gold is $850/ounce and dropping fast it looks like my advice should have been (and hopefully was) heeded.