Oil hedges turn toxic for weak balance sheets (Robert Campbell)

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Gas Prices

NEW YORK (Reuters) - Companies with weak balance sheets are discovering that hedges against oil price moves can be almost as punishing as this summer's leap in crude costs.

Physical oil trader SemGroup LP told its lenders this week it may file for bankruptcy after margin calls on hedges designed to protect its 500,000 barrels per day business from a fall in oil prices gobbled up its cash reserves.

{xtypo_quote_right} "With these explosive moves in the commodities a lot of hedgers are exceeding their credit lines and when they go to their banks they can't get any more credit," said Phil Flynn of Alaron Trading in Chicago. {/xtypo_quote_right}

SemGroup's publicly traded subsidiary SemGroup Energy Partners LP (SGLP.O: Quote, Profile, Research, Stock Buzz) disclosed its privately held parent's financial troubles late on Thursday.

Traders are required to post a margin, a percentage of their position in cash, to guarantee they will meet their obligations. When the price of a futures contract rises, traders who are short the contract receive a margin call from the exchange requiring them to post even more cash.

"It's a classic producer squeeze," said John Kilduff, senior vice president at MF Global in New York. "They have the oil and assets in the ground but they have to make these real-time margin calls."