A new article from the current issue of Forbes Magazine discusses allegations that Goldman Sachs and J. Aron and Co. may have had something to do with the spike in oil prices that brought oil to $147 per barrel. The controversy surrounds the very large short position, held by Semgroup, a then $14-billion per year (in sales) company, that was the equivalent of 20% of US oil reserves, and the [alleged] price manipulation that led to an incredible short squeeze. Nonetheless, this is a very interesting and insightful article.
Did Goldman Goose Oil?
Christopher Helman and Liz Moyer, 04.13.09, 12:00 AM ETHow Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.
When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.
But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup's collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup's accounts.
"What transpired at Semgroup was no less than a $500 billion fraud on the people of the world," says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days....
Read the whole article here.
