Rumors have been swirling all week that scandal-tainted futures brokerage Refco ( RFXCQ), which filed for bankruptcy last week, has been liquidating positions. In particular, speculation is rampant that the slide in both oil and oil stocks this week reflected selling by Refco, its clients, or both.

"I don't doubt that for a moment," says Dennis Gartman, editor of The Gartman Letter. "I've been talking to friends that work at Refco and some with positions at Refco, and I know for certain that there's a lot of people trying to liquidate, to close their positions and to get cash as fast as they can."

Refco roiled markets on Oct. 10 after disclosing stunning news that former CEO Phil Bennett owed the company nearly half a billion dollars and that the firm's financial statements could not be relied upon. It filed for bankruptcy on Oct. 17 after agreeing to sell its futures trading operations to J.C. Flowers & Co.

Meanwhile, Friday brings the market expiration of options, a time when a lot of positions need to be squared. While stock prices saw wild moves all week, energy shares and crude oil were among the most downwardly volatile.

The Amex Oil Index slid 7% from Monday's close through Thursday, with selling accelerating ahead of options expirations on Friday. Some of the oil sector's biggest names, such as Exxon Mobil ( XOM), Chevron ( CVX) and Occidental Petroleum ( OXY), fell more than 6% over the three trading days. Things improved Friday, however, with the Amex Oil Index lately up 2%.

The price of crude has also been sliding since Monday. It went from $64.36 at Monday's close to below $60 Friday (the front-month contract moved to December Friday morning). Crude was recently down 52 cents at $59.50, representing a 7.5% slide from Monday's close.

It's hard to know for sure how much, if any, of the downward move was caused by Refco-related selling, given that crude oil and other energy prices had already weakened noticeably in recent weeks. The broad move was attributed to the expected course of Hurricane Wilma veering away from key energy operations on the Gulf Coast, and to indications of rising energy inventories.

But to Gartman, active selling of Refco positions could easily have accelerated the downside in energy quotes. "It takes buying and lots of it to bring a market up, but it only takes lack of buying to take prices down. And we already had a market that was weak," Gartman says.

Some investors with accounts at Refco, such as investment guru Jim Rogers' management company, have told their shareholders that Refco's bankruptcy means they can't get their money out for the moment, as reported here by's Matt Goldstein.

But some of Refco's operations, such as its securities brokerage unit, are still operating.

And "the mindset of anyone, whether it's a client, someone at Refco, or the banks that have lent any money to Refco, is 'I want out now, I don't care what the legal shenanigans may be, I want out, period,'" says Gartman.

Not everyone believes that the liquidation of Refco-linked positions had anything to do with the slide in energy shares and oil prices.

"That's a sideshow," says contributor Howard Simons, a former director of research at Fimat USA and manager of econometric analysis at Transworld Oil.

Simons says that crude and energy shares were already coming down before Refco's implosion. "You could only keep prices overstretched for so long without leading to some demand destruction," he says.

That's true of both consumers and businesses, as well as of refineries, whose profit margins -- although still very high -- were getting squeezed, Simons says. "It was wishful thinking on the part of many people that refineries margins would just keep on rising forever," he says.

Donald Selkin, director of equity research at Joseph Stevens, says Refco liquidations also had little to do with the broader trend of lower oil and energy share prices. "The biggest manipulation in history was how they got so high in the first place," he says, mentioning hedge fund speculation and Goldman Sachs' infamous call in late March that oil may reach $105 per barrel.

One thing where Gartman, Simon and Selkin agree, is that, as Gartman puts it, Refco's demise is "a great catalyst to take some of the froth out of the energy market."
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.