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Big O and the IEA - WTF?
I’m surprised by the move by the President and the IEA. What’s this about?
Is it about the price of oil?
Before the announcement WTI was sitting around 95. That’s a solid $20
lower than it’s peak eight weeks ago. Why would Obama & IEA act
today? A very big price adjustment has already been made. If the
circumstances were different and the price of WTI was through $120 I
might have agreed to this. But why make a splashy show now when no show
is required?
There is more to this than meets the eye is my conclusion.
Is this really about Libyan production?
On a global basis I don’t think this sells. Japan’s slowdown offsets
most of the Libya loss. Anyway, the Libya story is two months old. Why
the action so late in this game?
Is it about punishing speculators?
Obama promised to do this. I thought he delivered on his promise when
the CFTC started raising margin requirements willy nilly. But direct
intervention in the crude market? That is raising the anti by a great
deal of chips.
The driving force in the drop in crude over the past month or so has
being the growing realization that the global economy his hitting
multiple speed bumps.
Not to be boring, but China, Japan, Europe and the USA are all slowing
down. What “specs” out there were swimming against that tide? Not many,
in my opinion. So if one of the objectives was to beat on the players I
think this moved missed by 90 days. IMHO this silliness is setting up a
great buying opportunity. So the specs are going to cash in when this
washes out.
Is it about teaching a lesson to OPEC?
I am concerned that this is a factor. The US wanted OPEC to up
production. That didn’t happen. So the bad boys who produce oil just got
a shot across the bow.
Watch if this angle on the story gets “play”. It would piss off those
bad boys and they will retaliate. Does O really think he can take on the
world oil market? He can’t beat the Taliban. OPEC will crush him.
Is it about stimulating the US economy?
This seems to be a significant part of the equation. But just think this
through. The rule is that for every $1 drop in crude we see a 2-cent
drop at the pump.
Say for the sake of it that this drama will result in a $10 drop in
crude. So the pump goes down by a lousy 20 cents. Do the deep thinkers
really believe that if gas gets twenty cents cheaper for a month or two
that they have really bougt themselves anything? Are things so
desperate that steps not taken before are justified? That’s a conclusion
the stock market was pondering today. The bond market ran up the same
flag.
Is it about stimulating China or Europe?
That can’t possibly be the case. The 60mm brls represents just 16 hours
of global consumption. If it’s stretched out over 30 days it comes to an
insignificant 2% of daily demand. That is a super tankers worth. There
are hundreds of ships at sea right now with that much crude on them.
This has nothing to do with influencing global supply.
Is this a desperate move by the administration to show leadership?
I looked at the WH home page and did not see this important development
highlighted. Maybe the big O is trying to distance himself on this one.
I’m convinced this will backfire. Give it two months. Tops.
Are supply and demand conditions such that this extraordinary move is justified?
Beyond the already discussed Libya non event I’m not aware of something
that is blowing up in one of the big producers. Does Obama have some
insight on this? Does he know something I don’t about Iraq, Iran,
Venezuela or Nigeria? Stay tuned. If something blows in one of these
over the next few weeks you will see how things are orchestrated.
Is this a big deal?
On the numbers; no it is not. But it is one of those sharp right hand
turns that come up from time to time. Because it is so unusual it bares
noting. We live in an interventionist world. Every aspect of the global
economy is trying to be manipulated by the “Deciders”. I have never
seen a precedent like today. In that sense, I consider this to be a very
big deal.
Are we going to see more of this type of market intervention?
I’m sorry to say that we might. What’s been offered up is a drop in the
bucket. So round two of this foolishness is a distinct possibility.
Did Bernanke know this was coming when he spoke with great confidence that oil prices would soon retreat?
This took months to put together. Bernanke knew it was coming. We live in a manipulated world.
My thoughts:
-This was a bonehead move that was put together by Euro technocrats.
They dreamt this up two months ago. It was a dumb plan to offset the
consequences of Libya. Because 30 countries are involved it took sixty
days to ink an agreement.The timing today is a mistake.
-Mr. Khadafy is pissing many folks off at this point. He should be gone
by now. Look for Mr. K to get a cruise missile up his arse any day now.
The principal rationale for this market intervention is Libya. Take that
out of the equation and there is no justification left for continued
meddling in global markets.
-This one trick pony is going to knock 15 cents off the price of gas for
a month or so. There will be a disruption in market liquidity and
inventory levels. This will result in a big spike in crude sometime this
fall.
-OPEC will respond. “We” will pay a price for this.
-There will be technical problems at the SPR. They will not be able to deliver 2mm barrels a day of light sweet crude.
-Obama will get some egg on his face with this one.
»
- advertisements -
a happy face on geared momentum.
What would happen if the Straights of Gibraltar, The Gulf of Oman and/or the Gulf of Aden were compromised?
Those three little passages see over 50% of the worlds daily oil supply pass through them ?
Nah, those are solid and reliable areas aren't they??
Djibouti: May 25th 2011 http://www.emsc-csem.org/Earthquake/earthquake.php?id=223816
Yemen: June 12th 2011 http://www.emsc-csem.org/Earthquake/earthquake.php?id=225934
Straights of Gib: June 22nd 2011 http://www.emsc-csem.org/Earthquake/earthquake.php?id=226493
This is what happened last time Gibraltar moved...
http://en.wikipedia.org/wiki/1755_Lisbon_earthquake
$500 oil bitchez
Golly gee, inflation in China is transitory too. Hoorah!
Remember, it's not what you buy, it's Wen.
How China plans to reinforce the global recovery
http://www.ft.com/intl/cms/s/0/e3fe038a-9dc9-11e0-b30c-00144feabdc0.html...
Well, my calculations and the total amount of reserves that the US has means that we could manipulate the price of oil for approximately 1 month, max before we are completely out of oil. Political motivation, is perhaps the reason, but not for any readily apparent one. I am of the opinion that this release is more debt ceiling related, than punishing speculators related. This is easy money, just sitting untouched. Granted I would have released it when I could have made more money off of it aka at it's peak. But, perhaps Obama actually thought politicians would work with each other, and it wouldn't come down to running the government off of the money made from the sell of our oil reserves. Granted, at todays price it's only 2 or 3 billion dollars, but that might buy some time for an already broke government... or maybe fund another vacation or brew fest in Ireland.
Expect oil to rally.
By "market", I imagine you mean stock market. It recovered, because the balance of the $600 B in QE2 was dumped into stocks, by the squid. Notice that crude, gold, silver, corn, Euro, came off their lows, but could do no better. The Fed market prop cannot go on much longer!
I disagree. Why would Obama contribute 50% if it was a Euro play against US interests?
I disagree. I'm rooting for him to repel the invading imperialist lickspittle running dogs!
This may, indeed, be O'bomber's plan ... to provoke them into a reaction that will give him an excuse to invade the next domino.
I doubt it. He has a plan. I expect he'll successfully find someone else to blame (see 'OPEC' above).
On the other hand, it may just be a ruse to divert attention from what he's planning next in Syria and Jordan.
" I expect he'll successfully find someone else to blame "
Bush?
It makes more sense if you sign on to the conspiracy based prediction that the goal is a 2012 global war over oil, which will require much higher prices in the US in 2012.
- Why strip down the reserve?
- Why try to reduce drilling in the gulf?
- Why seemingly irrationally foment rebellion (all planned)and attack all of those countries in the Middle East simultaneously?
- Why is Obama playing golf and why has Rick Perry shown up on the presidential scene?
- Why create all of the press around high gas prices and why are they higher than they need to be given the price of oil?
To get public support for the global war against the oil producing countries, the price of oil must go much higher and the US people must really feel the pain. THEN the US government must identify a bad guy to rally against.
We get a massive war in the middle east and China and the Iraq proxy may be drawn into it because they will also be squeezed. (Where were the forces of light and darkenss suposed to meet at the end of days? and who is which?)
You guys make it so complicated - The government is short of money. How much did this oil cost when it went in the reserve? This is a straight pawn what you got because you know the price is going to dip.
Brent not WTI.
And warning shot. ahead of the election. Would you lever up on oil now?
could be more simple stuff for this to happen right?
1. there could actually be a lot more supply on the way and no place to store?
2. Isnt Iraq oil controlled by US?
3. didnt Big Banks play with the QE2 money for going long and now are taking delivery and store that instead?
i guess next will be a full fledge opening of the gulf of mexico drilling and may be that is what is required to calm the prices.
if crude is such an important commodity that it can derail economies, why not take it off open markets completely and nationalise it?
all comments i read are so advanced that i feel naieve posting these simple questions, my apologies.
cheers
I know it's way simple-minded, but gee, couldn't it just be about price-discovery?
Based on what I've been able to figure, this looks kinda like a dark-pool auction, so only the "seller" gets the relevant data before the deal is closed.
That looks like obvious intelligence-gathering to me. It's not like folks can look at market pricing.
Hi Bruce, I always enjoy your posts and their accompanying graffiti pics. Normally, I disregard others misuse of words, but out of respect for your writing skills, it seems appropriate to point out:
ante - a poker stake usually put up before the deal to build the pot
I'm both shocked and disappointed. This is a glaring error. I accept full responsibility, but let me offer on explanation.
I had an excellent proofreader. He was from Yale. Never a mistake, but he was so boring I fired him. The replacement is from Estonia. She is a recent arrival, following the near 50% devaluation of the local currency. I think of her as an economic refugee, and I have a 'soft spot' for these situations.
This lady is 26, tall and thin, blond, athletic. Sort of a young Gwyneth Paltro. The only drawback is that this beauty does not speak English all that well and spelling is not her forte.
Being deeply troubled by your comment I decided to 'sleep on it' before making a critical decision.
Well, let's just say that after a refreshing sleep I have come to the final conclusion; she stays.
In the coming months I will be sure to work with Svetlana on her spelling and grammar. In the mean time you and the other word smiths out there will just have to suck it up.
bk
... commendable, although I am not sure she would like being called an "it".
"In the mean time you and the other word smiths out there will just have to suck it up."
OK, then I guess piling on would not be effective at this juncture. I too noticed the anti/ante gaffe. That made me wonder about the use of "bare" versus "bear" in the following sentence:
" Because it is so unusual it bares noting."
At least you are making an honest attempt to allay future grammatical errors. And, you are providing essential employment for immigrants. How good of you! How can I get my own similar proofreader?
That was very funny. A little off color but funny and a nice response to the spelling nazis.
Tis a managed world after all. Libya is a big deal. The EU faces a dilemma since confidence in the EUR goes part and parcel with debt refinancing. While a stronger EUR does not help the competivity of European exports it does offset USD weakness and the corresponding rise in oil prices and makes investment in the Eurozone more compelling. A EUR falling like a stone and a flight of captial will not be pretty. If you look at the dependencies on Libyan oil in particular it goes right at the periphery and into the weaker core, including Italy and France. This is frightening. The Irish are highly dependant, as are the Greeks. It is truly a clusterf-ck which explains France's insistence on Nato strikes. You can't have a debt crisis, political crises and oil crisis all at the same time. One is bad enough. Hence, I am in Total agreement on the Tomahawk up the Arse theory.
Never underestimate a cornered beast.
As far as OPEC is concerned, this is not the 70s oil embargo era. The Saudis are and should be scared out of their wits by the political turmoil of the Arab Spring, which to a large extent is due to the inflation that the FED is not causing. There is a huge rift in OPEC around these issues and the split with the Iranians and Saudis only grows deeper. And by the way, where's Hugo these days? In a hospital in Cuba? Hopefully he is seeing a very good proctologist because after his invitation to base Iranian missles in Venezuela, I believe that he will be experiencing the same problem that MQ is desperately trying to avoid.
The inflation that the FED is not causing is at any rate transitory, as the Chairman has repeatedly told us. In oil at least, it's lower global demand due to soft patches cum recession, with the coup de gras being the latest market manipulation by the IEA announcement. It is transitory because growth is slowing, market flows from FED liquidity are slowing which is in essence tightening, and the PTB will continue to manipulate the markets to make it transitory where they can. Recessions are caused by central banks and a recession is better than hyperinflation.
In the long run will it work? Probably not. For now? It's a propaganda and psyops campaign to throw market participants off of their stride. If the game is reduce pressure in the cooker by letting off steam in commodities and equities and slow the pace of USD decline (the pace but not the general direction, especially vis a vis Asian currencies), it's entirely logical. These inverventions will continue across different asset classes and political spectrums. Manage risk accordingly.
Now that's how you do it.
By the way, I'm teaching a course on english for sexy refugees. Svetlana sounds like a good candidate for some of my tailored training. That is unless she's too busy with work. Let me know if you're interested.
Thanks but no thanks. I'm keeping this one "in house".
Ermmm...
Haven't we been through this one before?
Like over a year ago? How is she a new arrival?
I believe her name is Zsusanna? No?
Not to bust your chops but something isn't adding up in those statements...
Bruce,
This is an old political trick - do something inconsequential but take credit for EVERYTHING.
You've made the key points in your article:
- Oil prices are trading down over the last two months
- Pump prices for gasoline have dropped about 50 cents/gallon already
- This release from the SPR will knock off another 10 - 15 cents/gallon
As lawton pointed out above, QE2 ending is going to draw down the commodity markets - Uncle Ben is reducing the "liquidity allowance" & the "speculation" will cool down for a couple of months. Let's say this take another 15 cents/gallon off by mid-August.
Sixty days from now, Obama will make a speech declaring how HE took on the oil speculators and brought down the price at the pump by 80 cents/gallon !!!!
(The seals in the seats and the media will go wild !!!)
... and right after that speech, QE3/Operation Twist/Squeal Like A Pig will start up, the analyst predicted demand for Q4 will kick in and we will all be paying $ 5.00/gallon or more by Christmas.
Do you see any holes in this scenario?
barliman
It certainly does seem like the "skids are being greased" with oil for the election speech about geting Osama, oil, and Whitey Bulger to fall under the Obummernation plan.
Yea now that sounds about right. I like Operation Squeel Like a Pig, it's got a good ring to it. There's nothing like the feeling of being raped in a forest on top of poison oak with a lump of sand in your mouth.
Hey now, the brother is just another market short.
When deflation sets in and crude drops below $80/bbl they can fill er up agin' and pocket the delta while getting time to expand the SPR to a full 1B bbl capacity.
although i'm not always in agreement with mike kreiger and i don't always agree with all of his reasoning,
he's right about this move showing transparent weakness of the institutions hoping to control prices through anything other than embracing deflation.
the pressure on oil to go up is going to be immense these next few years when and until the money printing stops.
any and all attempts to cap prices , or raise margin requirements, or regulate prices just shows that tptb will try everything they can before they are going to stop printing money ( whether they do that by choice in the end is anyone's guess ) . this is evidence that further printing is more likely , and thus further upward pressure on prices.
it's a cycle,
print, watch prices go up, regulate,...print, wpgu, reg, ....
Someone leaked the news early as the oil futures dropped dramatically
an hour before the announcement. I sure would like to know who made
big profits on it. Paybacks for a large re-election contribution?
Let it not be said that Immelt is a cheap lay.
omg is anyone from texas? is this the gull island thing? will yemen and the royal family of ssaud now be attacked?
This was done to buy back the U.S. treasuries held by Asia and to bring back dollars given to Europe to cover the the rotten mortgage securities the U.S. banks sold to them.
60Mbbl * ~$112 = ~$6.6B
I doubt very seriously $6B lolbucks are going to make much of a difference.
So, how do they intend to recoup the oil they are selling? Are they going to be buying it back on the open market later on? Somehow I doubt they will be buying it back at ~$20/bbl.
the question for me is, why did the market recover today??? it was looking like a nice deflationary day, and the drop in everything oil related just went along with it... remember, the news of the big miss on Initial Claims came before the IAE news...
there seemed to be a hint of an idea that this intervention was a taste of the new form of qe3, and therefore, the market should rally... but 60MM barrels = $6 billion plus or minus, so it is nothing close to the scale of liquidity dump that we have seen...
It's all about justifying the invasion of Lybia for the bankster class; Obama is worried about Congressional approval, because the whole deal smells to high heaven. Don't forget that Ghadaffi was going to set up an African Union with a currency backed, not by the banksters, but by a gold dinar. A protection against inflation for a whole continent will not, must not, be allowed.
Yeah...he's like Ron Paul, but with more weed and a touch of sharia law.
Impressive analysis. Fools trying to act smart is always a good place to start these days...I do think the 'teaching OPEC a lesson' point is crucial. Wonder what OPEC will decide to teach us...
Jim in MN
"Wonder what OPEC will decide to teach us..."
What all dealers teach their junkies when they need their next fix- it's gonna cost ya.
Terrific analysis BK.
On a side note I wonder if any of those hundreds of ships at sea or soon to be at sea will reach their scheduled port for offloading or if some will be diverted enroute or with last minute changes to their normal operating pattern. The answers to those and the natural follow on questions will prove instructive to the primary talking point.
Cheers
Good thoughts Bruce, but I really think it is one or both of:
1) The federal government trying to scrape up some petty cash to pay their ordinary expenses while those gosh darn Republicrats refuse to hike the debt ceiling; or
2) China made Obama an offer he couldn't refuse, along the lines of "sell us some oil to pay down the debt you owe us, or we dump that debt and crash the dollar."
I can't really see an ordinary political angle to this. It's not 3 weeks before an election, and US gas prices have been declining for weeks on end. Locally gas is now down to the "low" price that had been the end of the world only a few years ago.
Getting warmer...
i was loaned the obama book 'dreams from my father' or something.
it was an audiobook and as it was getting embarassing that i hadn't done anything with it for 6 months so i listened to it.
the overall feel was all about him being an ordinary guy and coming from poor hard working background. his mama partial to foreign guys.
similar themes to the election campaign that promised a new start away from the wealthy, priviliged Bush clan.
And so he became president and nothing happened.....
i would say if any of us became president of the USA we'd fuck those banksters up so bad... bring back the jobs from china, blah blah
Why hasn't he?
i think the answer is he's been bought off big time
they have promised him a second term and this is part of the deal.
all done with bankster approval.
Hank bought him Fall 08. Brown bags of cash and Goldman personal checks.
Actually, it was da Zbig what did dat...
Don't be sucked in by his "aw shucks, I'm just an ordinary guy" routine. He's 3rd generation CIA, his grandfather is directly related to 6 former US presidents (actually, according to some bright schoolgirl, a few months back, he's related to ALL previous US presidents as 9th cousin or less).
He was bought and sold long before any of us ever heard of him.
------------------
Wiki: "Stanley Armour Dunham’s distant cousins include six US presidents: James Madison, Harry Truman, Lyndon Johnson, Jimmy Carter, George H. W. Bush and George W. Bush.[24]"
What a load of horse shit (releasing the 30m barrels of our reserve, I mean). That lasts us a day and a half... Wtf? These dumbasses are relying on rational ignorance, all of them.
duplicate post, my bad.
What a load of horse shit (releasing the 30m barrels of our reserve, I mean). That lasts us a day and a half... Wtf?
These dumbasses are relying on rational ignorance, all of them.
Wait, do you mean rational ignorance, or national ignorance?
Had the identical WTF thoughts especially that first sound of the agreement focused upon the US release from the SPR. Why? Price'd already been falling on its own. Why now?
And major secondary WTF as no domestic ruminations whatsoever apriori (regarding the SPR release,,, generally a n oopen point of contention, discussion)
Then the follow on was that the release was wrapped in an IEA blanket agreement. Oh my, politics, especially via European motivations. And time lapse between thought through negotiation to action. (So some logic, there)
But the long form WTF remains, WHY? The oil markets are already in contango, trading down. The risk is of further MENA/OPEC member disruptions.... which to date have been initiated by the western oil consuming powwers via suportive revolutions/colours/springs/AYMs or direct kinetic engagemants (bomb and kill).
Signal of more to come?
or,
glacial bureaucratic pace of first event?
Further, it is in essence no different intervening in commodity markets than in financial to meet desired ends. In this case, to hold inflation and inflationary expectations in check. But why? For the global economy is softening and as such should likewise minimize commodity price advances, indeed depressing such.
So, maybe to be looed upon as a pump priming for QE3. No, little grasshoppers, inflation and commodity prices have fallen, ergo we can invoke the next round of stimulus without worrying of inflation.
Way complex system, but t'would serve the purpose.
Make the big banks mega happy. More new business swapping about those debt instruments, front running commodities, indeed, a whole boat load of new clients chased off of the closed 100:1 commodity spec business.... going over to the big guys products....
Maybe even get some subtle thanks from the peasantry for the small effort. The press will follow the trends and report accordingly.
OT but your comment on the Colonel prompted a thought on the Yemini leader. Anyone besides me think Obama ordered the hit on that dude? To much disinformation on the prognosis of the leader's health in conjunction with pressure to get the acting VP to move things along in the transition of power.
BK, you are over-thinking this one.
It's O'bama being himself. He's out in Lala land.
The strategic reserve is irrelevant, as you say it represents a few hours supply.
Oil prices are declining b/c peeps are broke. $100 tank is a killer for a giant pickup truck or SUV. None of the 'stimulus' did anything to increase longer- term wage earning. Broke today, broker tomorrow.
Add to this more 'austerity' as if beatings will 'improve morale'.
The entire fuel-waste-borrow-pray system is broken from top to bottom. Time for 'Plan B' w/ no cars and no TV. Get rid of these and an economy can emerge from the rubble, otherwise more and more rubble.
More rubble. Just watch don't believe see for yourself.
steve
Well said all around Steve. TV was a huge one for me.
ORI
http://aadivaahan.wordpress.com/2011/06/21/thunder-perfect-mind/
This old man agrees completely
thanks, steve