Wednesday, August 6, 2008

Whoops! CFTC reclassifies one speculator with a $55 billion crude position!!

A CFTC spokeswoman declined to elaborate on the move or to identify the trader that had been reclassified as a speculator.

Big CFTC data revision raises oil traders' eyebrows
Tue Aug 5, 2008 4:29pm Market News

By Robert Campbell

NEW YORK (Reuters) - A quiet data revision that has boosted by nearly 25 percent the number of oil futures contracts U.S. regulators think are held by speculators is raising eyebrows in the energy trading community.

The revision means that speculators controlled 48 percent of the open interest in NYMEX crude oil futures and options as of July 15, compared with just over 38 percent under the previous classification.

"That's huge when you look at the numbers," said Phil Flynn of Alaron Trading in Chicago.

"It changes the whole way you look at the recent moves in this market."

The U.S. Commodities Futures Trading Commission announced on July 18 that it was reclassifying some trading positions that it had reported as commercial hedging positions as noncommercial speculative positions.

The data revision converted approximately 327,000 long and 330,000 short NYMEX crude oil futures and options positions into mostly spreading positions held by speculators.

The big shift is all the more surprising, oil traders and analysts said, since the CFTC reclassified only one unidentified oil trader at the same time as the data revision.

"There may have been multiple 'positions' which were reclassified ... but they all appear to have been held by just one trader, and this was a very special trader, with an enormous concentration of positions in crude oil amounting to perhaps 460 million barrels, and not much interest in anything else," noted John Kemp of RBS Sempra Commodities.

A CFTC spokeswoman declined to elaborate on the move or to identify the trader that had been reclassified as a speculator.

The reclassification comes amid the collapse of energy trader SemGroup LP, which filed for bankruptcy on July 22 after suffering $3.2 billion in losses on oil futures and derivatives.

SemGroup has blamed its collapse on unauthorized speculative oil trading by its co-founder and former chief executive, according to a court filing by a SemGroup lender.

The SemGroup collapse coincided with a sharp fall in oil futures from their peak over $147 a barrel in mid-July. However a person familiar with SemGroup's trading position said Monday the trader's position was not concentrated in any one month and was more focused on intermonth spread positions.

"This was no Amaranth or Motherrock," said the person familiar with SemGroup's futures trading book, referring to two energy hedge funds whose multibillion dollar failures roiled futures markets.

SemGroup began the process of transferring its NYMEX trading book to Barclays Plc on July 11 after drawing down a $54 million line of credit to place a deposit with the British bank, according to bankruptcy court testimony.

SemGroup completed the transfer of its trading book to Barclays on July 16.

The transfer of SemGroup's NYMEX trading position was instigated by the exchange itself, according to a source familiar with the NYMEX's activities.

SemGroup's financial difficulties were first disclosed by its publicly traded subsidiary SemGroup Energy Partners LP on July 17, three days after its parent hired The Blackstone Group to advise it on restructuring and two days after a conference call with its lenders where it told them it had run out of cash.

The Securities and Exchange Commission and the U.S. Justice Department are investigating SemGroup Energy Partners' disclosure practices.

No comments: