Oil hedges turn toxic for weak balance sheets (next shoe to drop - margin calls)

[UpInArms]

Source: Reuters

NEW YORK (Reuters) - Companies with weak balance sheets are discovering that hedges against oil price moves can be almost as punishing as this summer's leap in crude costs.

Physical oil trader SemGroup LP told its lenders this week it may file for bankruptcy after margin calls on hedges designed to protect its 500,000 barrels per day business from a fall in oil prices gobbled up its cash reserves.

<snip>

Traders are required to post a margin, a percentage of their position in cash, to guarantee they will meet their obligations. When the price of a futures contract rises, traders who are short the contract receive a margin call from the exchange requiring them to post even more cash.

<snip>

Energy analysts said more liquidity problems are likely to surface in the wake of the torrid rally since April that pushed oil prices up 45 percent to a record $147.27 a barrel.

Companies facing the biggest threat right now could be those that took short positions on crude, experts said. Independent oil and gas producers, companies like SemGroup that buy and trade oil, and refiners head the list of potential victims and the credit crunch at U.S. banks is making the situation worse.

"With these explosive moves in the commodities a lot of hedgers are exceeding their credit lines and when they go to their banks they can't get any more credit," said Phil Flynn of Alaron Trading in Chicago.

Read more: http://www.reuters.com/article/reutersEdge/idUSN1844188720080718?sp=true

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Hang on! It's gonna get bumpy!

[Tandalayo_Scheisskopf]

1. This tells me...

That there is gonna be some more downside action on the oil market this week, as the herd is culled.

[Mojorabbit]

8. TS Dolly just formed

and the models show it going for the Brownsville/mexican border so far. I think if it shifts to a more northerly track there will be a bump in price. Time will tell.

[Cirque du So-What]

2. Could the 'pugs be encouraging this culling of the herd?

If they drive some high-flying speculators over the edge with margin calls, won't this discourage other speculators and drive down long-term prices? Could this be part of a scheme - to drive down the price of gasoline in time for the election?

[whistle]

3. Watch what happens to these funds when the Fed double the prime lending rate to 4%

[Uben]

4. I feel so sorry for them!

They may have to file for bankruptcy! Oh pooh. These bastards that have artificially driven up the price of gas are having problems now. Maybe we can bail them out.


OR NOT!

[Warren Stupidity]

5. I am no wall street genius but...

"Companies facing the biggest threat right now could be those that took short positions on crude"
aren't those the folks betting that the price would fall? How are they to blame for rising prices?

[Tandalayo_Scheisskopf]

9. Because they will be leaving the markets in numbers...

And bring the prices down in the process. It will decrease the amount of trades and "churn". You can also imagine that this will take out longs as well, as the price drops.

[Warren Stupidity]

10. The poster I responded to claimed that traders holding short

positions pushed the price up. I continue to fail to see how they pushed the price up by betting that the price would fall.

But then again I do not believe that the long price inflation in oil is speculation driven at its core. Instead the exhaustion of cheap oil supplies and the prolonged devaluation of the dollar are the fundamental forces that are determining oil prices. Speculators might push spikes up and down into the price, but the long term trend is up. Blaming speculators is just another diversion, like drill everywhere and gas tax holidays, to avoid actually dealing with the difficult but necessary restructuring of our economic infrastructure to deal with the related problems of peak oil and catastrophic climate change. The republican party continues to deliberately defraud the citizens of this republic by pandering idiotic quick fixes to fundamental problems and by devauling the warnings of the scientific community with dishonest counterfit attacks on their reasoned and conservative warnings of looming disaster.

[TheFarseer]

13. I'm not understanding this either.

wouldn't last week's drop of $15 (or whatever) help short sellers out alot? I thought the point of the article would be that falling oil prices would beget falling oil prices because of margin calls, but that wasn't what it said at all. Is this article just a week too late?

[fascisthunter]

6. "Bail Them Out"

Uben, I think that was the plan all along. Let's see if it actually happens. I may be wrong, but I think this financial crisis this country is living in has been in the works for some time.

Why do I say this? Because it appears too many times that our government is willing to bail out those who fuck up "royally" (no pun intended) with Bush and his cabal as insurance, while shitting on the average tax payer by destroying social services and giving the average tax payers the bill.

US citizens work for the rich and get nothing but peanuts in return.

[Joanne98]

7. GOOD!

[MrBlueSky]

11. I don't know about the rest of you...

but I am hoping that this portends a burst in the oil bubble that's been building since 2001.

You'll notice this downward trend began when Sen. Reid decided that he had a spine after all and decided to call for investigation of the oil speculators... who, in turn, got nervous because Bu$h Inc promised no oversight whatsoever... and started the sell off of the oil futures.

Does Sen. Reid realize that he can actually do good things for the American people... if he just finds his spine???

Imma keep my fingers crossed until oil is back under $10 - $25 a barrel... where it BELONGS!

Drop, baby drop... the faster the better for America's hard working families!

:smoke:

:hippie:

[jb24]

15. Why does it belong at $25/barrel?

Do we have a God-given right to cheap energy now? And yes, I can see how the resulting increase in pollution and acceleration of global warming will be good for American families.

:sarcasm:

[burf]

12. It appears that oil is not

the only place where margins are taking a beating. From todays Star Tribune:
Squeezed by commodities prices and tougher lending standards, many grain elevators are running out of cash.

snip

The financial crunch has led to the closing of one grain elevator in Illinois and another in Nebraska in the last year. Many others across the Midwest have nearly exhausted their credit limits. Another sharp rise in commodities prices -- like the one that occurred this spring -- could force many more elevators to fold or to sell out to Wall Street investment funds.

Link: http://www.startribune.com/business/25629164.html?location_refer=Homepage:6

BTW UIA good to see ya' on a Sunday!

[NashVegas]

14. "Or Sell Out to Wall St. Investment Funds"

Wall st. taking over the food supply is NOT good.