Drop in oil prices possibly due to speculation
Bob Morris @ Jul 23rd 2008 20:31 - Category: Unfiled Tags: oil prices
SemGroup just filled bankruptcy after a $3.2bn trading loss in commodities. Interestingly, they were short oil, meaning they expected prices to drop. But a wildly flucuating oil market combined with other traders smelling SemGroup blood in the water forced them to liquidate their positions at a huge loss. Thus, speculation may have been directly responsible for a drop in oil prices.
From the comments to the post on Naked Capitalism.
Sorry to be dense, but why would covering a short position cause prices to fall? Seems like they would instead rise as the position was bought in.
Other market participants will be aware of their predicament and deliberately move the market against the hapless trapped firm in order to force a liquidation. Once they succeed, they can take off their own positions.
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