Huge oil trading loss sinks energy trader SemGroup

[phantom power]

They chose... poorly.

NEW YORK — A $3.2-billion (U.S.) trading loss on oil futures and derivatives sank high flying energy trader SemGroup LP, which at one time billed itself as the 14th-largest private company in the United States.

The Tulsa-based SemGroup shorted NYMEX crude oil futures to hedge against a decline in the value of the oil it purchased as part of its 500,000-barrel-per-day trading business, according to court documents, before surging crude prices forced it to recognize billions of dollars in losses on futures positions.

http://www.reportonbusiness.com/servlet/story/RTGAM.20080722.wsemgroup0722/BNStory/Business/home

[CountAllVotes]

1. did I hear a *pop*?

:popcorn:

:kick:

[phantom power]

2. Not sure what you mean...

they lost their pants trying to short the market, and oil just kept going up instead.

[JohnWxy]

6. They must have bought contracts to deliver x barrels of oil to hedge against the price going down.

Unfortunately, for them, the price went up and they had cover those contracts to deliver by buying contracts for the delivery (to them) of the same amountof oil at a higher price than they paid for the contracts to deliver.

[GliderGuider]

3. My mama always told me,

"Son, when you go out in public, remember to cover your shorts!"

50% of all speculators guess wrong...

[Turbineguy]

4. As somebody once told me about shorting:

There's a limit on how much money you can lose going long... All of it. With shorting there is no such limit.

[Speck Tater]

5. As oil production peaks and demand grows...

...this is a monumentally stupid time to be betting that oil prices will go down. In the long run (with, of course, assorted wiggles both ways) oil will only go up from now until forever.