$3.2 Billion Loss to Shorting Crude!

SemGroup

Looks like we have got a very interesting and REVEALING story for you -- SemGroup [1]. I bet you had never heard of such a company huh? Well, I won't blame you for that, because this is NOT something the mainstream media nor the politicians nor the regulators will like to talk about, otherwise they risk revealing just how wrong they had been when pointing their fingers at the speculators and just how INCOMPETENT they were in regulating the Crude Oil market, the largest market in the world by far.

Warren Buffett [3] said it, Boone Pickens [4, 5] said it, Jim Rogers [6] said it, Ron Paul [7] said it, and we at bhc investment have consistently and repeatedly said that commodities are largely driven by supply and demand [8, 9, 4] -- the blame game and fingers pointing at the scapegoat speculators simply MAKE NO SENSE.

“Some people blame speculation for oil price rise. If it is speculation, when the oil price is too high, the people with oil will drown the speculators. It is just a stupid accusation that speculators are behind the oil rally...”

-- Jim Rogers

SemGroup filed for bankruptcy protection last week after losing a total of $3.2 billion due to its net short position in the Crude Oil market. This makes SemGroup the 2nd largest ever collapse in commodity trading, after the $6 billion loss by Amaranth Advisers in 2006 [2].

Given the recent heated talks and PUBLIC BRAINWASH of speculators driving up prices of Crude Oil and other commodities, why is this news NOT on the frontpage headlines of the mainstream financial press and media? Make no mistake: the mainstream media will not want you to pay attention to this incident, nor the CFTC nor the NYMEX for that matter.

Such an incident can NEVER EVER have happened without the regulators FALLING ASLEEP AT THE SWITCH -- of course they will not want you to know this. So you better listen to what I am going to tell you here.

Among the reported $3.2 billion loss by SemGroup, $2.4 billion was due to its net short position in the NYMEX Crude Oil futures market and $0.8 billion in the Over-The-Counter market. This means SemGroup could have established an open interest in the scale of 100,000 futures contracts -- yes, a WHOPPING 100,000 futures contracts. To put things into perspective for you, this amount of futures contracts is equivalent to about 100 million barrels of Crude Oil, which is MORE THAN THE DAILY GLOBAL CONSUMPTION!

SemGroup netted the entire position short -- SemGroup was the single, biggest SPECULATOR. For the politicians, regulators, and mainstream economists who had been fingers pointing at the speculators, you better come out telling us why weren't you guys going after SemGroup! And how on earth can NYMEX have ever allowed SemGroup to establish such a GIGANTIC position?

I have no idea of the exact when-and-where SemGroup established its position, but my guess is SemGroup was probably forced to cover all its entire short position just before Crude Oil hit the 14X mark. The public data shows that open interest in Crude Oil had been DECLINING FOR MONTHS. Therefore, SemGroup could most likely have gotten out at the very high mark!

Precious Metals

Now if you think the situation with SemGroup is breathtaking, you have seen NOTHING! A similar GIGANTIC, net short positions exist in both the Silver and Gold markets. The following is what I said in [10]:

-- I believe the central banks cartel is the one responsible for the concentrated net short positions in Silver and Gold. They have been doing that for years. The most important question here is how are they going to cover them all back without suffering massive losses.
-- Their concentrated net short positions now account for nearly 80% of the open interest in the Silver market and over 60% of that in the Gold market. You will not hear this reported by the media.
-- We continue to believe the price of Gold will reflect the investment demand in the inflationary environment we are in, which we have been predicting all along.
-- Markets are irrational, but strength and weakness tend to 'propagate' from one dominating time frame to another. In my view, the previous all-time high at 850 is already broken. The correction we are witnessing right now is a good-bye-kiss, not the beginning of a secular bear.
-- The fact that I am betting against the central banks cartel doesn't worry me. The fact that after all those 'massaged' jobs and GDP reports and nearly 80% and over 60% of concentrated net short positions in Silver and Gold, respectively, they can only manage to bring these precious metals down less than 30% from the recent highs makes me think: "it's gonna be a heck of a ride when the sentiment turns!"
-- If prices are to fall below 850, I will buy more.

The net short position in the Silver market is now equivalent to almost 220 days of WORLD MINE PRODUCTION! And the large traders now account for 80% of the entire shorts for both Gold and Silver. This is OUTRAGES and clearly dwarfs the net short position by SemGroup, which is just more than 1 day of global oil consumption. Let me say this for the record: next time when you see an 'analyst' or 'expert' commenting on Gold and Silver, ask him/her how on earth can such a concentrated net short position have ever occurred in the markets. If he/she doesn't even know there's such a thing, they don't know what they are talking about!

I have no idea of when those concentrated net short positions are going to be covered, but make no mistake: by the time they cover, Gold and Silver will have nowhere to go but up -- STRAIGHT UP!!! [Again as usual, this post is published without market timing and comment made here must not be viewed as a recommendation to buy or sell a particular security. Please consult an investment advisor before making YOUR investment decision. What you want to do with YOUR money and YOUR wealth is entirely *YOUR* decision. We are running this website because we think we can tell you more than the many so-called 'experts' and 'analysts.' bhc investment has no newsletters nor products to sell.]

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References:

1. SemGroup's Collapse Pinches Small, Regional Oil Producers
2. Amaranth Advisors
3. Buffett: Inflation is “Exploding”
4. Boone is Now with Boon, Part III
5. Boone is Now with Boon, Part IV
6. Oil speculators are getting killed: Jim Rogers
7. Paul: "Is the Fed, NOT speculators!"
8. Humble Suggestions, Part IV
9. Humble Suggestions, Part V
10. Boon vs Robert Prechter, Part VI

Related posts:

• Global Wealth Destruction
• Global Wealth Destruction, Part II