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Guest Post: Goldman’s Global Oil Scam Passes the 50 Madoff Mark

Tyler Durden's picture




 

Submitted by Phil at Phil's Stock World

$2.5 Trillion - That’s the size of of the global oil scam.

It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs).  That’s right - $2.5Tn is 50 TIMES the amount of money that Bernie Madoff scammed from investors in his lifetime, yet it is also LESS than the MONTHLY EXCESS price the global population is being manipulated into paying for a barrel of oil.

Where is the outrage?  Where are the investigations?

Goldman Sachs, Morgan Stanley, BP, TOT, Shell, DB and Societe General founded the Intercontinental Exchange in 2000.  ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws.  The exchange was set up to facilitate "dark pool" trading in the commodities markets.  Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se.  They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.

A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate "round-trip" trades.  Round-trip” trades occur when one firm sells energy to another and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company.  This is nothing more than a massive fraud, pure and simple.

"Traders of the the ICE core membership (GS, MS, BP, DB, RDS.A, GLE & TOT) wouldn’t really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and “squeezing” those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate." - Chris Cook, Former Director of the International Petroleum Exchange, which was bought by ICE.

How widespread are “round-trip’‘ trades? The Congressional Research Service looked at trading patterns in the energy sector and this is what they reported: This pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place. Yet since most of the trading is unregulated by the Government, we have only a slim idea of the illusion being perpetrated in the energy sector.

DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were “round-trip” trades.   That means 80 percent of all of their trades that year were bogus trades where no commodity changed hands, and yet the balance sheets reflect added revenue.  Remember, these trades are sham deals where nothing was exchanged.  Duke Energy disclosed that $1.1 billion worth of trades were “round-trip” since 1999. Roughly two-thirds of these were done on the InterContinental Exchange; that is, the online, nonregulated, nonaudited, nonoversight for manipulation and fraud entity run by banks in this country. That means thousands of subscribers would see false pricing. Under investigation, a lawyer for J.P. Morgan Chase admitted the bank engineered a series of “round-trip” trades with Enron.  

You can chart the damage done by Goldman Sachs and their gang of thieves by by looking at commodity pricing pre and post ICE.  Before ICE, commodities followed a more or less normal growth path that matched global GDP and was always limited in price appreciation by the fact that, ultimately, someone had to take delivery of a physical commodity at a set price.

ICE threw that concept out the window and turned commodity trading into a speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn’t need the things that were not produced.  And in just 5 years after commencing operations, Goldman Sachs and their partners managed to TRIPLE the price of commodities.

Goldman Sachs Commodity Index funds accounted for $60Bn out of $100Bn of all formula-managed funds in 2007 and investors in the GSCI lost 15% in 2006 while Goldman had a record year.  John Dizard, of the Financial Times calls this process "date rape" by Goldman Sachs as the funds index rolls cost investors 150 basis points of return annually ($9Bn on the Goldman funds) but GS, under the prospectus, is able to "manage our corresponding position," which means that it has to deliver a price at the end of the roll period. If Goldman can cover that obligation at a better price, they will, and GS pockets the difference.  This is why we see such wild moves in the day’s before rollover, there are Billions riding on GS hitting their target every month…

It is not surprising that a commodity scam would be the cornerstone of Goldman Sach’s strategy.  CEO Lloyd Blankfein, rose to the top through Goldman’s commodity trading arm J Aron, starting his career at J Aron before Goldman Sachs bought them over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio.  According to Chris Cook:  "It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates."  According to Cook:

It appears to me that what has been occurring in the oil market may have been that – through the intermediation of the likes of J Aron in the Brent complex – long term funds have been lending money to producers – effectively interest-free - and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.

A combination of market hype, the opacity of the Brent Complex and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup, which that company’s management subsequently blamed mainly on Goldman Sachs.

Mike Riess issued a study of "Modern Market Manipulation" in which he describes how GS, MS, DB et al have systematically created an environment that rewards those who manipulate the system, robbing the poor to send the money up they company ladder in exchange for record bonus payouts, which (by design) are the majority of their traders’ salaries:

Before the ‘80’s, there were just us traders. "Rogue" traders arrived on the scene with the large institutional participants, both private and public. Today’s companies and government marketing boards are large enough for senior management to distance itself from controversy, including market manipulation.

In a competitive, amoral environment, middle managers in these mega-organizations have the authority to hijack an institution’s reputation and the financial clout to manipulate the market—and they do. As long as they succeed, they enjoy promotions and perks and, sometimes, the fruits of embezzlement. If the manipulation unravels, the company denies any knowledge and hangs the rogue out to dry. We’ve seen this over and over again, most recently with D’Avila and Codelco, Hamanaka and Sumitomo, Leeson and Barings and Tsuda and Daiwa Bank.

The CFTC’s definition of manipulation is:

A planned operation that causes or maintains an artificial price

Unusually large purchases or sales in a short period of time in order to distort prices

Putting out false information in order to distort prices.

In mid-2008 it was estimated that some $260 billion was invested in the Brent energy markets on the ICE while the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most.  NYMEX trading follows a similar path with 258,000, 1,000-barrel contracts open for December delivery (258M barrels), which were traded 327,000 times yesterday alone yet, at the end of the period, less than 40M barrels of oil will actually be delivered as that is the total capacity at Cushing, OK - where NYMEX contract deliveries are settled.  Every single one of those traders know it is not even possible for 80% of the contracts they are trading to be fulfilled - its a joke, but the joke is on YOU!

Over the course of an average month at the NYMEX, 5 BILLION barrels of oil will be traded, with a fee being collected on every single transaction which is ultimately passed down to US consumers, yet less than 40M barrels will actually be delivered.  That is just 8 tenths of 1 percent of actual demand for the product that is being traded - 99.2% of the oil transaction fees being paid by the American people do nothing more than create fees for the traders and record profits and bonuses for the trading firms!

Index Speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years.  Today, in many commodities futures markets, they are the single largest force.  The huge growth in their demand has gone virtually undetected by classically-trained economists who almost never analyze demand in futures markets.  As money pours into the markets, two things happen concurrently: the markets expand and prices rise. One particularly troubling aspect of Index Speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing.

Before ICE, the average American family spent 7% of their income on food and fuel.  Last year, that number topped 20%.  That’s 13% of the incomes of every man, woman and child in the United States of America, over $1Tn EVERY SINGLE YEAR, stolen through market manipulation.  On a global scale, that number is over $4Tn per year - 80 Madoffs!  Why is there no outrage, why are there no investingations.  Well the answer is the same - $4Tn per year buys you a lot of political clout, it pays to have politicians all over the world look the other way while GS and their merry men rob from the poor and give to the rich on such a vast scale that it’s hard to grasp the damage they have done and continue to do to the global economy.

CIBC Chief Economist, Jeff Rubin issued a report last year that blames the current recession on high oil prices, saying defaulting mortgages are only a symptom.  According to Rubin, these higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn’t be too surprised if they started this one also:

Oil shocks create global recessions by transferring billions of dollars of income from economies where consumers spend every cent they have, and then some, to economies that sport the highest savings rates in the world.  While those petro-dollars may get recycled back to Wall Street by sovereign wealth fund investments, they don’t all get recycled back into world demand. The leakage, as income is transferred to countries with savings rates as high as 50%, is what makes this income transfer far from demand neutral.

There is NO shortage of oil.  OPEC alone has 6-7 Million barrels a day of spare capacity, more than the total disruption of any single country and any two countries other than Saudi Arabia could offset.  Additionaly ICE partners Total and JPM are part of the cartel that is totally skewing the global demand picture by storing 125M barrels of oil in offshore tankers.  That’s 15 days of US imports that have been "ordered" but never delivered so they show up as an extra 1Mbd of global demand, even though nobody actually wants them.  Land-based storage is also bursting at the seems, with global supplies up to 61 days of total consumption (84Mbd) up from 52 days last year.

That’s 5 BILLION barrels of oil already out of the ground, in barrels and ready to go AND THEY KEEP MAKING 86M MORE EVERY DAY!!!  Where is the shortage?  Mainly, it is media hype pushed by "analysts" at the very firms that profit the most from high oil prices.  Goldman Sachs issues bullish opinions on oil and builds large positions in oil, while it is the cartel’s job to hide oil in off shore tankers, and then sell forward all the oil, with futures contracts, locking in the high price.  Of course they have their media hounds as well, most notably the Drudge Report.  As noted by Goldmansachsrules:

Type in the word "OIL" inside the "Drudge Report" search engine. It returns 1,965 headlines with the word "OIL." Over the last couple years, The Drudge Report has ran 1,965 headlines with the word "OIL." Most of these articles were hosted by the worthless organizations of Yahoo, Breibart, APNews, and Reuters. The Drudge Report just creates the headline, and links it the article hosted by who ever is doing the "hyping."

Search on the word "credit crisis" and you only get 12 archived headlines. The word "bailout" yields only 268. The word "bank" returns only 568. So you have the Drudge Report hyping the oil market, because they bring it up almost 2,000 times. Unlike the "credit crisis" or "Wall Street Bailout" that actual did happen, the oil market and what did/didn’t happen between Israel/Iran is plugged 10 times more!

Of all the 1,965 articles that the Drudge Report ran with the word "OIL" in the title, most were hyping the oil market. The most notorious cases, a few times a week, were hosted by Yahoo, Breibart, and AP News. Most of these articles were plugged with the same paragraph that stated if "Israel were to attack Iran, Iran would retaliate by taking over the straits of Hormuz, the largest pathway for oil and we all know what that would do to the price of oil.

It truly takes a global village of manipulators and their lackeys to pull off a con on the scale of oil but it’s also the most profitable scam ever perpetrated on the people of this planet as they take control of a vital resource and then create artificial shortages and drive speculative demand in order to charge you an extra dollar per gallon of gas.  You don’t complain because it’s "only" $15-$20 every time you fill up your tank, but that’s what they count on and that’s where you’re wrong - it’s $20 from you and $20 from EVERY SINGLE ONE of your customers once or twice a week and $20 more dollars your employees need just to get to work.  It’s money that could be going into your business instead of a new gold bathtub for a Saudi Prince or a Goldman trader.

Global drivers consume 1.7Bn gallons of gas every single day, that $1 is $50Bn a month, a Madoff per month that is being taken away from YOU and YOUR business and the non-energy/financial businesses you invest in.  Of course we can give up and invest in those sectors (we do) but that doesn’t do much for the global economy and, even as you sit here now, not doing anything, those oil and profits have been plowed into the copper and gold markets and now the same Goldman energy cartel is bidding to take over you clean air (through Carbon Credit trading) and your clean water.

Maybe when they are charging you $80 a gallon for water and ten cents a breath you’ll want to do something about it.  I think I’ll start right now and you can too!  Here is the Email address and Fax numbers for all of yor Senators, Congresspeople and Governors.  Send this article to them and let them know you’d like to see an investigation.  Take a few minutes of your time to save a few bucks on your next gallon of water!

 

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Thu, 11/12/2009 - 11:00 | 128418 John Self
John Self's picture

I'm not sure it's correct to say ICE is outside of the reach of U.S. laws.  While it's true that it started out overseas -- in London, I think -- it now has a significant presence in the Atlanta area and I believe is now within CFTC jurisdiction.  Both ICE and NYMEX have been actively involved (read:  lobbying) with the development of the new derivatives regimes.

Thu, 11/12/2009 - 11:15 | 128437 Shiznit Diggity
Shiznit Diggity's picture

The squid is doing the world a favor by jacking up the price of oil. Peak oil is imminent if not already upon us. We need to get our arses in gear and deal with it. In this case, Lloyd is right about the squid doing the Lord's work.

Thu, 11/12/2009 - 11:49 | 128494 Anonymous
Anonymous's picture

Peak Oil is imminent?? You're kidding, right?

Thu, 11/12/2009 - 12:57 | 128584 Assetman
Assetman's picture

We had a similar condition developing with natural gas less than 10 years ago in the North American market.  Because of technology developments in exploitation (specifically in shale formations), we now have what is estimated to be an 80 year supply.

If exploration and exploitation techniques in the drilling business evolve as one would expect, we will eventually run into reservoirs that we thought never existed.  Case in point is offshore Brazil.  Antartica might well be another.

Thu, 11/12/2009 - 17:41 | 129004 Anonymous
Anonymous's picture

Faith in technological progress is quite risky business. Remember the projections for flying cars in the '50s? Fusion power is just 20 years away, right? The cure for cancer is in sight?

The question is not whether the oil is there, it's whether or not it can be economically extracted, both in monetary and energy terms. Offshore is risky and capital-intensive, not something you wanna count on for the master-resource of the global economy.

Environmental effects from non-traditional sources are also an issue, as evidenced by the Niger Delta and the Alberta Tar Sands. How much are we willing to pollute in order to maintain a declining status-quo?

I'm sure the ancient Maya thought they could endlessly clear the forest for increased food production, until they depleted the soil and their civilization collapsed. I'm not a proponent of the Dieoff worldview, but it illustrates the point that just because we can doesn't mean we should.

For an alternative perspective on shale gas reserve estimates, read some stuff by Arthur Berman. The fact that he was recently silenced by the industry should send up red flags.

Thu, 11/12/2009 - 13:02 | 128593 Shiznit Diggity
Shiznit Diggity's picture

Many believe so, myself included. Some disagree. Time will tell who is right, but even if peak oil is a couple of decades away as the IEA projects, it's better to start preparing sooner rather than later.

Fri, 11/13/2009 - 01:30 | 129413 TumblingDice
TumblingDice's picture

Peak oil already happend dude. The survival of our species is at stake. Think for yourself. Even if the manipulators are perpetuating this theory that doesn't make it false. A broken clock is right twice a day and this time it certainly is. Efficiency is going down, as well as production now. It will be an exponential decline is harvested energy.

Thu, 11/12/2009 - 13:35 | 128633 Anonymous
Anonymous's picture

Dude, PO is soooo...2005.

Thu, 11/12/2009 - 13:37 | 128638 Anonymous
Anonymous's picture

The 1973 oil crisis was about "peak oil". So was the 1980 oil crisis. Same hysteria. It's bullshit now just like then.

Thu, 11/12/2009 - 17:12 | 128971 Anonymous
Anonymous's picture

Well, technically the early '70s was the peak of Continental US production, so I'm not sure your evidence supports your point.

Hysteria overblown? Yes. Peak Oil bullshit? Not on your life.

Thu, 11/12/2009 - 20:47 | 129200 Anonymous
Anonymous's picture

THERE IS NO PEAK OIL PROBLEM.YOU HAVE FALLEN FOR ANOTHER MANIPULATION.
SEARCH THE TERM ABIOTIC OIL. OR YOU CAN GO ON BELIVING ALL THE WORLD'S DINOSAURS DIED OFF IN MASSIVE HERDS AND CONVENIENTLY
ALL WERE TURNED INTO CRUDE OIL. WAKE UP AMERICA.
"THEY THAT FORGET HISTORY ARE DOOMED TO REPEAT IT"
BRAVO 7

Thu, 11/12/2009 - 21:05 | 129222 Anonymous
Anonymous's picture

It wasn't dinosaurs that died, it was massive ancient forests and swamps.
Also, why are you screaming? Are we supposed to take you seriously because you can push caps-lock?

Thu, 11/12/2009 - 11:15 | 128438 aint no fortuna...
aint no fortunate son's picture

Why don't we cut out the middle man and just send our tax returns and payments to Goldman? Really, in the long run it would be so much simpler. And Jamie Dimon can get the sales taxes on gasoline, heating oil, diesel, aviation and marine fuel, nat gas. 

Thu, 11/12/2009 - 12:55 | 128579 rigger mortice
rigger mortice's picture

'Why don't we cut out the middle man and just send our tax returns and payments to Goldman? Really, in the long run it would be so much simpler.#'

 

lol!!!!!!!!!!!!!!

Thu, 11/12/2009 - 11:21 | 128442 max2205
max2205's picture

The Government rally seems weak in the knees now that there is talk of using the $800 B in TARP monies to pay down the deficit, what, sell out of stocks and pay off the deficit, GS must be pissed.

Thu, 11/12/2009 - 11:23 | 128445 lizzy36
lizzy36's picture

And because all former squid CEO's have 9 lives, Corzine in the running for CEO at BAC.

Thu, 11/12/2009 - 11:27 | 128452 Careless Whisper
Careless Whisper's picture

that's so he can destroy one more of the squid's competitors.

Thu, 11/12/2009 - 11:51 | 128499 SDRII
SDRII's picture

It's the new American way: reward the losers

Thu, 11/12/2009 - 11:55 | 128505 deadhead
deadhead's picture

in some ways I hope you are correct Lizzy. It would be the ultimate jump the shark for the wall st, banking, fed, treasury complex.

i'm looking forward to when that group gives the order to invade your fine country, expropriate the oil and all your maple leafs.

 

 

Thu, 11/12/2009 - 11:24 | 128448 Anonymous
Anonymous's picture

How else are GS going to make their $100 million a day profit ?

Thu, 11/12/2009 - 11:25 | 128449 Anonymous
Anonymous's picture

I can't wait for carbon trading to begin

Thu, 11/12/2009 - 11:27 | 128453 Anonymous
Anonymous's picture

"The exchange was set up to facilitate "dark pool" trading in the commodities markets."

wow. i'm speechless. this might be a single most idiotic sentence i've seen this year. c'mon ZH, tighten up your ship.

Thu, 11/12/2009 - 15:13 | 128785 mberry8870
mberry8870's picture

Agreed, A tad bit of hyperbole in order to display a pedestrian understanding of the issue.

Thu, 11/12/2009 - 11:32 | 128461 Sqworl
Sqworl's picture

Revolving door...loser goodie bag from government.

Thu, 11/12/2009 - 11:47 | 128488 A Man without Q...
A Man without Qualities's picture


Thu, 11/12/2009 - 11:47 | 128489 A Man without Q...
A Man without Qualities's picture

"They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel."

This is the ranting of a madman....

Thu, 11/12/2009 - 11:50 | 128495 Robb
Robb's picture

Sick!

Thu, 11/12/2009 - 11:50 | 128496 Anonymous
Anonymous's picture

Not to worry there are pledges and comitments

Aug. 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke, named today to a second term as central bank chief, pledged to work toward restoring stability to financial markets and the economy.

“I will work to the utmost of my abilities” to help “provide a solid foundation for growth and prosperity in an environment of price stability,” Bernanke said today in a Martha’s Vineyard, Massachusetts,

Thu, 11/12/2009 - 11:52 | 128500 curbyourrisk
curbyourrisk's picture

No justice til Goldman trades at ZERO.

Thu, 11/12/2009 - 11:52 | 128503 Gimp
Gimp's picture

Rome is totally bought and paid for, such a shame.

Thu, 11/12/2009 - 11:57 | 128511 Anonymous
Anonymous's picture

Praise the Lloyd!

Thu, 11/12/2009 - 12:04 | 128519 Yossarian
Yossarian's picture

So, if this is a Ponzi the question becomes when does it end?  It seems there are only two ways: a collapse in spot caused by a large decline in demand at a time when storage is limited; or the inability of the financial players to keep funneling capital (wrong word, maybe just dollars) into the futures markets.  With China stimulus encouraging more VLCC's and The Fed intent on supplying GS/JPM/MS with unlimited amounts of free dollars, it seems like this can go on for quite a while, at least until the gold-bug fiat collapse comes about.  And when that happens at least they will have all of the oil/gold/copper/fertilizer/food/lumber/land to continue extorting the masses.  Or maybe- just maybe- we will turn off American Idol, CNBC, and MSNBC (besides Dylan Ratigan) and force a change.  Ron Paul we NEED you. 

Thu, 11/12/2009 - 12:08 | 128524 steve from virginia
steve from virginia's picture

Uh ... 'Round trips' (or check kiting as Chris Martenson calls it) are found in all markets. It's a good way to pump up velocity as well as a balance- sheet steroid. As for the derivatives created; at some point they would be converted to cash provided there is sufficient cash.

Conversion to cash (or cashing out or rats abandoning the sinking ship) is behind the market/stimulus dynamic of today. From that viewpoint, ICE serves to keep the ordinary futures/cash markets stable, the better to facilitate cashing out.

Look at today's markets and see if you come to a similar conclusion. If you do, best to close out any dollar- short positions.

:)

Thu, 11/12/2009 - 13:01 | 128590 Yossarian
Yossarian's picture

Can you please expand on this for the layman- thx.

Thu, 11/12/2009 - 12:15 | 128531 ShankyS
ShankyS's picture

Glad you picked this one up. Nice post Phil.

Thu, 11/12/2009 - 12:17 | 128533 Anonymous
Anonymous's picture

I hear that once Cap and Tax passes, there will be a 10 cent fee for each breath.

The money will go to Goldman Sachs and to the Obama Administration to pay for Stimulus Plans number 2, 3, 4, and 5.

Thu, 11/12/2009 - 12:31 | 128554 Anonymous
Anonymous's picture

ok so if big oil controls the price of oil, why did they let it collapse last year?

Also, are they ratcheting up the price of the metals too? the euro? sugar ratcheting maybe?

Thu, 11/12/2009 - 14:28 | 128704 One Eyed King
One Eyed King's picture

It wasn't just oil that collapsed last year. The whole worlds economy slipped into reality for a bit. I would suggest you focus on the numbers & not debunking the 'crazy conspiracy theorist's' and you might broaden your knowledge of the issue.

Thu, 11/12/2009 - 12:39 | 128562 Anonymous
Anonymous's picture

This will end when the price of oil drives many companies out of business. The unemployment roll is the big equalizer. 2010 is going to bear a bust companies going out of business will not pay rent CRE will drop further. More unemployment more people not paying the mortgage or rent. Fannie Mae renting to past homeowners competes directly with apartment owners less rent.
Goldman Sachs is smart at making money will they be smart enough to keep the game going. Different set of skills with a 12% unemployment rate, Goldman sponsored soup kitchens? Empty buildings turned into homeless shelters ala Goldman, doubt it.
The Government has yet to realize that they are the problem. Goldman Sachs is just a bedpartner of the status quo which will change, what we cannot predict is the damage when it changes.
You can offer 1.2Million people loan mods but how many of those people are going to be resourceful enough to complete the paperwork without someone holding their hand. Think about all the free tax filing services and still people are lax with paperwork.
Human beings will do what is best for them, avoid paperwork, make promises and move out whenever you have a better situation.

Thu, 11/12/2009 - 12:47 | 128568 Anonymous
Anonymous's picture

Nymex has swaps too, called WS. They are the exact same thing with same position limits. You can not move a physical market if there are no real buyer at the end of the day. Ever hear of basis? Come on man.

Thu, 11/12/2009 - 13:05 | 128598 Yossarian
Yossarian's picture

But aren't we essentially captive buyers in the short-term (LT economies adjust their behavior to a higher price) and the marginal reduction in demand from the real economy is made up for with stored crude.  Eventually that crude needs to find a buyr but if you're GS/JPM sitting on a lot of crude would you dump it on the market or create a new collateralized asset class composed of oil assets that you can dump to pension funds, sovereign wealth, etc.?  

Thu, 11/12/2009 - 12:51 | 128574 bugs_
bugs_'s picture

Love the new "madoff" unit.  How big is social security in madoffs?

Thu, 11/12/2009 - 12:52 | 128576 Anonymous
Anonymous's picture

3Com Option Trades May Have Been More Than ‘Luck’
http://www.bloomberg.com/apps/news?pid=20601109&sid=a4C7u2V_HwJQ&pos=12

"Goldman Sachs Group Inc. advised 3Com on the transaction, while Morgan Stanley helped Hewlett-Packard, according to"

Ha, if I could be as "lucky" as Goldman

Thu, 11/12/2009 - 13:06 | 128600 Gunther
Gunther's picture

The tone of the article is a bit misleading.

During most of the run-up in the price of oil there was almost no spare capacity; ALL producers were pumping flat out. Right now there is some spare capacity and the price came down. Without a tight physical market a purely financial manipulation can not work.
Right now there is no shortage, but during the run-up there was!
The storage of oil on tankers is some 1.5 world production days, not that impressive.
EIA supplies storage data in for the US. The low was  at September 10, 2004 at 17.2 days supply and the high in Feb '83 at 34.2 days supply.
http://tonto.eia.doe.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=W_EPC0_V...

Thu, 11/12/2009 - 13:29 | 128626 adinfinite
adinfinite's picture

why are people still acting like this is news? Its amazing how we all see the thing right there on our screens, in numbers, and our common sense tells us whats going on but we say or do nothing. Then some guy writes about it ( although replete with inaccuracies) and we all express horror? LOL. Trade. Take care of your families. 

Thu, 11/12/2009 - 13:33 | 128629 Anonymous
Anonymous's picture

As per Diggity's comment "The squid is doing the world a favor by jacking up the price of oil. Peak oil is imminent if not already upon us." I disagree. I understand what he's saying, and I agree that replacing oil is ultimately advantageous, but any long-term benefit of price manipulation is incidental and, more importantly, unreliable.

First, the manipulation is likely to whipsaw prices to squeeze money from the market without regard to ecology or efficiency and with the ultimate goal of crippling, or at least exsanguinating, the all players.

And second, I'm no longer convinced that "peak oil" is the issue in the larger context. Rather, the issue is energy and there may well be viable and ecological alternatives. The question is how to incentivize their development, and for that it would seem that the freest possible market would be the best approach.

By "free market" I mean free not only to trade and to price, but also fee in the sense of free to make accurate long term projections which requires a free press, transparent accounting, and fungible assets (so as to support low cost reallocation). In short, free in the larger "free capitalist market" sense.

It is bad to argue that price manipulation is good. It is an argument that would warm the cockles of GS's ice heart.

Thu, 11/12/2009 - 13:36 | 128635 Anonymous
Anonymous's picture

"Without a tight physical market a purely financial manipulation can not work. " ------- It works best if you can spread rumors about attacks on Iran. However, that does not mean that it still works demand plummets like it is has now. Compare for instance, the price action in the Baltic Dry Index as compared to the action in oil.

Also, Phil fails to mention the USO put. USO publishes when they will purchase oil every month, so you can drive up the price into their purchases.

This way the USO, the way that pensioners, grandmothers, average joe, and unions invest in oil, is the ultimate bag holder for the traders.

You might say that the whole scheme is a tax on oil that goes to Wall Street instead of a tax that goes to the US gov't. Golly it'd be good to collect a tax on oil!!!

Thu, 11/12/2009 - 18:56 | 129109 Apocalypse Now
Apocalypse Now's picture

Fantastic point

Thu, 11/12/2009 - 13:36 | 128636 Anonymous
Anonymous's picture

too much money/credit chasing too few goods/contracts. Sound familiar? Lots of bored traderss with lots of cash sloshing around the globe. Give a guy a cheap computer, hook him up to the internet. give him lots of govt guaranteed doe and whoppee!! Hell of a lot easier than working construction. restrict credit and increase the price of credit, problem solved.

Thu, 11/12/2009 - 13:39 | 128643 Blues for Dante
Blues for Dante's picture

Wait until they figure out how to manipulate the "clean & usable" global water supply, then were all f*@ked. Instead of trading millions of barrels of oil, they'll be trading billions of gallons of water. And you can't just consume less water, or switch to a different resource. Once control over supply and distribution of water is handed over to the private sector, this process can begin. 

Bottled water is currently a $12 billion industry in the US alone. TWELVE BILLION DOLLARS! On bottled water! And that's a tiny fraction of total consumption. I know people who refuse to drink tap water... and some of them are not what I would call well-off. If people are dumb enough to pay for a free resource, then surely they can be gamed into believing water price fluctuation is due to a supply issue. There's a lot of money waiting to be made.

 

Thu, 11/12/2009 - 13:47 | 128654 ilene
ilene's picture

Here's an article on the supply of oil currently - demand for storing oil is high:

http://www.marketwatch.com/story/what-an-obscure-dutch-firm-says-about-oil-market-2009-11-12

...Vopak is the world's largest independent tank terminal operator, so when it comes to storing oil, liquefied natural gas and the like, they know a few things.

And on Thursday, the group raised earnings guidance for the second time this year.

The reason? There are a few, but the main one is that demand for storing oil is strong.

A major reason to store, rather than sell, oil is if there aren't buyers for it. (Another would be a bet that prices in the future will grow significantly, but the futures complex at the moment is pricing in a 7% rise in 12 months and a 16% rise over five years -- hardly an irresistible siren song.)

Thu, 11/12/2009 - 18:54 | 129108 sgt_doom
sgt_doom's picture

Thanks for your insightful post, ilene, and it completely negates Gunther's which I don't feel the need to destroy for it's rather simplistic and faulty lack of logic.

Thanks for the repeat of brilliant analysis we've seen again and again over the past several years (not being snide here as it definitely needs repeating).

One remark: "Goldman energy cartel is bidding to take over your clean air (through Carbon Credit trading) and your clean water..."

I'm afraid it is far worse than the link would lead one to believe:  Climate Exchange, PLC, is a holding company registered in the Isle of Man.  Remember, the purpose of holding companies is to hide the ownership, which in this case is principally Goldman Sachs, Morgan Stanley and InterContinental Exchange to begin with, so a recent purchase of a stake is for public consumption, as it is far worse behind the scenes.

Now, the holding company Climate Exchange, PLC owns a bunch of the exchanges throughout the planet which will be handling this so-called cap-and-trade "solution" (Chicago Climate Exchange, European Climate Exchange, Chicago Climate Futures Exchange, Insurance Futures Exchange and is joint ventured with Montreal Climate Exchange and Tiajin Climate Exchange -- and probably more since I researched this).

Now, General Asset Management does have a minor -- as in 10% stake -- in the Chicago Climate Exchange (GAM is the hedge fund started by Al Gore and his 3 buddies from Goldman Sachs, 'natch!).

ICE US Trust, the clearinghouse recently established for those pesky credit default swaps, etc., is slated to be used for the next batch of fantasy finance instruments (carbon offsets, carbon derivatives, etc.) and is owned by:  Goldman Sachs, Morgan Stanley, UBS, ICE and the MarkIt Group.

And who originally (and quite probably still owns) financed the MarkIt Group?  Why, Goldman Sachs, JPMorgan Chase, BofA and Citi, of course!

Also, DTCC's and MarkIt Group's joint venture, MarkitSERV will be utilized in exchange trading as well.  And who is primarily behind DTCC:  while the NYSE has 35% stake, the other banditos are Goldman Sachs, Morgan Stanley, JPMorgan and Credit Suisse, of course!

And we all know who owns ICE, right?

There is only one bubble: the financial engineering and anti-amortization bubble which encompasses all other sub-bubbles.....

 

Thu, 11/12/2009 - 19:05 | 129121 Apocalypse Now
Apocalypse Now's picture

Excellent comments on piercing the corporate veil.

This must be stopped, humanity hangs in the balance.

Thu, 11/12/2009 - 13:48 | 128655 Anonymous
Anonymous's picture

[ ] Peak Oil
Epic fail-stop watching tv.

Thu, 11/12/2009 - 17:07 | 128961 Anonymous
Anonymous's picture

Ummmm... pretty sure I've never seen Peak Oil substantively covered in the MSM... so don't really know what this means...

But if you're saying the theory of Peak Oil is epic fail, then you obviously have no understanding of geology, resource depletion or energy. Hubbert's model has been proven in every mature oil field from the Continental US to the North Sea. The question is not if, but when...

Thu, 11/12/2009 - 14:06 | 128673 time123
time123's picture

As long as trading the contracts is unrelated to physical delivery, manipulation will be possible.

 

time123

admin: http://invetrics.com

Thu, 11/12/2009 - 14:09 | 128677 Anonymous
Anonymous's picture

looks like just another buch of hot air. no explanation of how delivery of physical is avoided. no review of consumption vs. supply. looking for someone to blame. couldn't have anything to do with rampant currency debasement or credit expansion.

Thu, 11/12/2009 - 15:05 | 128768 ilene
ilene's picture

Phil has previously explained how physical delivery is constantly avoided.  The oil (physical itself) is not being traded.  Contracts are traded, and they are continuously rolled to future dates. 

To learn more, please see these additional articles.  I haven't reread each one, but am pretty sure you can find the explanation in these articles and by doing a search at www.philstockworld.com - Phil's been commenting on oil trading speculation for years:

Oil's Slick Moves in Washington

USO Oil Fund - All of the Drops, Only Some of the Gains

So You Want to Be an Oil Speculator?

Oil Manipulations Exposed

FUTURES PRICES DETERMINE PHYSICAL OIL PRICES

 

Thu, 11/12/2009 - 14:14 | 128685 Anonymous
Anonymous's picture

This article doesn't know what it is talking about. Round-trip trades were outlawed in 2002 and nobody is doing those anymore. ICE specifically looks for those trades and reports them. Enron and round trip trades are seriously old news.

Even though demand is down now, peak oil supply is here and traders know it. Even if oil went down to $40, the future price out 1 or 2 years would stay at $80. In two years, the world will be producing 80m bpd or less. Sell oil at $80 at your own peril.

Thu, 11/12/2009 - 18:58 | 129116 sgt_doom
sgt_doom's picture

Your completely inadequate post is easily refuted by anyone bothering to look at the trading stats and phenomenal growth of ICE since 2001.

And ICE does NOT specifically look for those trades, anyone familiar with its operational history as well as what appears in the Large Trader Report will immediately recognize your poast as a lie --- it's no wonder you are anonymous.

Thu, 11/12/2009 - 14:15 | 128687 JR
JR's picture

For those who have wondered how “speculation” drives up the price of energy,  Phil at Phil’s Stock World tells you exactly how in phenomenally frightening detail.

It’s an example of why the takeover of our government is so dangerous. In a proper government situation U.S. companies such as Morgan Stanley and Goldman Sachs would be held to U.S. laws and responsibilities regardless of whether or not they were operating offshore, i.e. ““ICE (Intercontinental Exchange) is an online commodities and futures marketplace.  It is outside the U.S. and operates free from the constraints of U.S. laws.”

It’s an example of the result of lobbyists buying and taking control of the Congress and the Oval office.  If Americans had proper representation, the government would bar Shell and British Petroleum and GS and JPM from doing business in the U.S. until they stopped illegitimately affecting the price of energy for American citizens. 

They are only exempt from the law because the Congress refuses to do anything about them.  Let them go to Dubai or wherever they want to go, but get them out of the United States.

Thu, 11/12/2009 - 14:17 | 128690 Anonymous
Anonymous's picture

The entire anti-dollar trade is in the process of a similar pump and dump. The herd are buying the recovery stories and will soon get smoked. 2 guesses which banks WON'T be on the wrong side of that trade!

Thu, 11/12/2009 - 14:33 | 128709 Anonymous
Anonymous's picture

Very nice post, articulated and evidenced.

In an update, you could clarify the mechanics of how and why the cash-oil swaps by GS-producers do succeed in raising oil prices.

Thu, 11/12/2009 - 14:34 | 128711 Anonymous
Anonymous's picture

Very nice post, articulated and evidenced. In an update, would you clarify, pls, the mechanics of how and why the cash-oil swaps by GS-producers do succeed in raising oil prices? Thanks

Thu, 11/12/2009 - 14:45 | 128730 Anonymous
Anonymous's picture

for your info- COOK was a discredited complience officer at the IPE (now ICE).Physical deliveries happen on ICE ,the European gasoil contract(similar to NYMEX heating oil.
Round trades - buy some ICE shares volumes growing constantly-if u cant beat them.......

brn

Thu, 11/12/2009 - 18:05 | 129046 Anonymous
Anonymous's picture

For your information, brn, I blew the whistle in 2000 on big time market manipulation, by traders and investment banks using the IPE 'settlement trade' facility on the Brent crude oil contract. I gave chapter and verse, including specific trade details, to the FSA, and it was buried.

Everything I said then was true - but swept under the carpet in classic British Establishment style - and I was buried as well in classic whistleblower style.

I am so 'discredited' that I gave evidence to the UK Parliament's Treasury Select Committee last year and to a Scottish parliamentary committee this year.

Keep on pumping, that seems to be your business......

Thu, 11/12/2009 - 15:05 | 128771 jimcg
jimcg's picture

Another theory is that the FED & Treasury are dictating the price of oil through the futures market via the Goldman connection in order that the Saudi's, and other oil producing countries, remain solvent and are able to continue buying our credit paper?

How do you think that will work out?

 

Thu, 11/12/2009 - 15:08 | 128776 Fish Gone Bad
Fish Gone Bad's picture

As I have said before.  The sole purpose of Goldman Sachs is to make everything more expensive for everybody, all the time.

Thu, 11/12/2009 - 15:26 | 128801 Anonymous
Anonymous's picture

$2.5 Trillion ... LESS than the MONTHLY EXCESS price ...?
Global oil consumption is about 85Mbd, that is about 2.5 billion barrels per month. That would make it $1,000 per barrel in excess price.
I know that Americans have problem with math and can believe anything, but this makes the government budget forecasts look like hard science in comparison. I have to wonder; are the other articles just as much based on facts?

Thu, 11/12/2009 - 16:50 | 128943 Anonymous
Anonymous's picture

Your math is in error. Verify it for yourself:

West Texas spot crude, lead by futures markets went from $19 in Dec., 2001 to $133 in June of 08. http://www.economagic.com/em-cgi/data.exe/var/west-texas-crude-long

Over the same time world demand only increased a few tenths percent more than supply (http://www.eia.doe.gov/ipm/supply.html), so assuming someone jacked the price by an average of $40 is very conservative.

85,000,000 barrels a day times 365 days = 31,025,000,000.
31,025,000,000 barrels a year over 9 years = 279,225,000,000.
279,225,000,000 times a conservative estimate of $40 per barrel of
Artificial price manipulation = $11,169,000,000,000 (that’s 11 trillion
dollars if you did not learn to count that high.)

I do not know where you were educated, but in America some of us have not only learned basic math, we have learned the art of critical thinking.

The world has been riped off to the tune of 11 trillion not 2.5 trillion. You need to understand that most of us hold back how bad it really is so we don’t frighten the children. The other articles are generally as factually based as this one, but the numbers are toned down so as to not frighten immature people such as you appear to be.

Timertim

Thu, 11/12/2009 - 15:32 | 128809 Anonymous
Anonymous's picture

All markets are equally impacted by the strong hands pushing liquidity and setting short term prices. To vilify GS here is absurd. Further, the more liquid venues to set security prices, the more indicative the price will be of actual supply and demand. The NYMEX determines the prices for delivery and the ICE trades off of this figure; not the inverse as you suggest. Finally, to argue that volume is greater than the underlying is a pipe dream. How often does an equity trade values multiples greater than its market cap in a single day?

Thu, 11/12/2009 - 15:46 | 128828 Anonymous
Anonymous's picture

Just forwarded the article to Ms. Neelie Kroes, European Anti-Trust Tzar....

Thu, 11/12/2009 - 15:56 | 128850 Anonymous
Anonymous's picture

This article is just more sensationalism. If the amount of contracts matched the amount accepted for physical delivery, I would be extremely worried as all the hedging activity disappeared. Most of hedging is done on cash basis. As well, most companies do not hedge month-to-month.

Second, what's wrong with round trip trades?
Nothing brings in the spreads like cross-exchange arbing.

Are you sure there's no acceptance for physical delivery at ICE?

Fri, 11/13/2009 - 20:59 | 130359 sgt_doom
sgt_doom's picture

While I realize it's silly to respond to Anonymous posts, I couldn't let this feeble attempt at disingenuous humor past:

"Most of hedging is done on cash basis."

Hilarious to anyone who has paid even scant attention to the markets and what has been transpiring in the wonderful world of securitization, synthetic securitization and ultraleveraging.

Surely, this Anon types must be from a National Association of Manufacturers (NAM) telecom center, or the American Enterprise Institute or perhaps an office at the Business Roundtable.

What pure and unadulterated claptrap!

Thu, 11/12/2009 - 16:12 | 128879 Anonymous
Anonymous's picture

Just forwarded the article to Ms. Neelie Kroes, European Anti-Trust Tzar....

Thu, 11/12/2009 - 16:57 | 128948 Anonymous
Anonymous's picture

"Here is the Email address and Fax numbers for all of yor Senators, Congresspeople and Governors. Send this article to them and let them know you’d like to see an investigation."

yeah I am sure those bozos will do something about it - ask for their piece of the pie maybe - if they are not getting a piece of the pie already.

Thu, 11/12/2009 - 16:58 | 128951 Anonymous
Anonymous's picture

"Here is the Email address and Fax numbers for all of yor Senators, Congresspeople and Governors. Send this article to them and let them know you’d like to see an investigation."

yeah I am sure those bozos will do something about it - ask for their piece of the pie maybe - if they are not getting a piece of the pie already.

Thu, 11/12/2009 - 16:58 | 128953 Anonymous
Anonymous's picture

"Here is the Email address and Fax numbers for all of yor Senators, Congresspeople and Governors. Send this article to them and let them know you’d like to see an investigation."

yeah I am sure those bozos will do something about it - ask for their piece of the pie maybe - if they are not getting a piece of the pie already.

Thu, 11/12/2009 - 17:30 | 128990 cw10304
cw10304's picture

What I learned from this article

  1. There is no shortage of oil
  2. Banks like GS & JPM manipulate the supply/demand aspect by storing oil in offshore tankers thereby limiting supply, and trading in the futures market to artificially increase demand. Combined together both push prices higher.
  3. Israel then keeps tensions elevated in the Middle East creating anxiety of oil supply disruption for fears of regional wars, creating a geopolitical justification for higher oil prices, with the media helping to hype the issue.
  4. The general public pays for this manipulation with higher gas prices which adds pressures to peoples incomes and leads to recessions.
Thu, 11/12/2009 - 18:40 | 129090 Tax Man
Tax Man's picture

1. as long as we have no growth, and they are betting there will be growth

2. if the storage of max 1,5 day of consumption is sufficient

3. the friendship between sunnis and shias is at a level capable of sustaining that level of uncertainty alone without Isreaeli help

4. the consumer always pays for all costs incurred on the way from the ground to the pump (plus a healthy profit)

Thu, 11/12/2009 - 18:43 | 129093 Tax Man
Tax Man's picture

double posting deleted

Fri, 11/13/2009 - 00:51 | 129394 JacksWastedLife
JacksWastedLife's picture

Looks good!

Fri, 11/13/2009 - 21:01 | 130362 sgt_doom
sgt_doom's picture

And Morgan Stanley (primary traders on ICE are Goldman Sachs and Morgan Stanley according to reliable sources).  JPMorgan is more behind-the-scenes in this particular gambit.

Thu, 11/12/2009 - 17:35 | 129000 Anonymous
Anonymous's picture

oh please. what does he want to do, shut down the oil futures markets? without heavy speculator participation, long term prices would be higher, not lower, as their bidding up of prices in the here and now incentivizes production.
market manipulations have taken place from time to time in history, usually with dreadful results for the manipulators. no-one is able to manipulate a market in the long term - it just doesn't happen. and the run-up to $150? big deal. every commodity ran up like crazy in 2002-2007. it's in the nature of commodity rallies that they end in big price spikes, but that's no reason to worry, since they are NEVER sustainable. i notice also, the institutions that are REALLY to blame for the rising price, those founts of inflation, the central banks, are not mentioned once. it's all big bad and evil Goldman Sachs, singlehandedly controlling a market that has 86m. bbl. in daily global use. commodities are one way investors protect their money against the constant depreciation this money suffers due to central bank printing presses. the idea that this would become 'better' if trading on the exchanges were somehow restricted takes the cake for naivete.

Thu, 11/12/2009 - 17:53 | 129022 Anonymous
Anonymous's picture

The article is logical and if accurate warrants regulatory attention. I must ask however, can't the same type of round trip be used with high frequency trades in the equities market? I am wondering aloud here... is the reason we do not see any government investigation and prosecution of these types of matters the direct result of the fact that no one in government has a clue about what is happening in the financial world?

Thu, 11/12/2009 - 18:59 | 129117 Apocalypse Now
Apocalypse Now's picture

Yes, everybody listen to this.  Dark pools in equities function the same way - in this case substitute talking about inflation for talking about Iran, they are just trying to create the biggest spread for their sale.

Thu, 11/12/2009 - 18:39 | 129082 ilene
ilene's picture

Here's a list of other articles on this subject, collected at Phil's and the backup site, since we've been watching this story for a while. - Ilene

List:

Oil's Slick Moves in Washington

USO Oil Fund - All of the Drops, Only Some of the Gains

So You Want to Be an Oil Speculator?

Oil Manipulations Exposed

FUTURES PRICES DETERMINE PHYSICAL OIL PRICES

The After-Hours Oil Scam

SPECULATION FIGHT: JUST WARMING UP

Attack on Prosperity and How Speculators Are Causing the Cost of Living to Skyrocket - http://www.spiegel.de/international/world/0,1518,559550,00.html

The Other Crime of the Century: 2008’s Short Squeeze in Oil

Speculators and Oil

Future Prices: http://www.philstockworld.com/2008/07/06/futures-prices/

See also Michael Master's testimony before the Committee on Homeland Security and Governmental Affairs

http://hsgac.senate.gov/public/_files/052008Masters.pdf

 

Excerpt from Oil Manipulations Exposed (written originally in May 2008) explaining how this works:

http://philsbackupsite.wordpress.com/2009/11/12/oil-manipulation-more-info/

"Many traders have moved to the unregulated over-the-counter exchanges that do not require companies like ExxonMobil or Goldman Sachs & Co. to disclose information about trades. "The lack of information on prices and large positions in OTC markets makes it difficult in many instances, if not impossible in practice, to determine whether traders have manipulated crude oil price," said Tyson Slocum, research director at Public Citizen.

I don't know a good site for tracking NYMEX contract volume from open to close but here is the flaw in A's logic (and User 198.. is close to the truth of it) - There is currently an "open interest" on the NYMEX for 378,974 contracts, representing 1,000 barrels each, that is the "demand" for July.

At the peak of June trading there were close to 450,000 open contracts but the NYMEX allows traders to "roll" open contracts to longer months WITHOUT PENALTY and by the close of the June contracts, less than 30,000 contracts (30M barrels) were actually finalized for delivery. The other 420M barrels that were, at some point, contracted to be delivered in June, were "rolled" into July, August, Sept. contracts.

You can track this nonsense here on a daily basis:

futures.tradingcharts....

Notice how there are 378,974 barrels "ordered" for July and 91,509 for Aug and 94,177 for Sept and 49,177 for Oct. I will tell you for a fact, right now, that on June 24th (close of July trading) there will be LESS than 40,000 contracts accepted for delivery. All but 40M of the now 378M barrels that could be delivered to the US PER THE EXISTING CONTRACTS will be cancelled by these evil, manipulative bastards in oder to create an artificial shortage of oil each month while driving up the apparent demand for the next month by rolling the contracts forward.

That's how the scam works.

Also, note that the "front month" contracts, the one they print on CNBC etc., rose $1.38 today, but longer contracts were negative.  The Dec 2015 contracts that they couldn't stop talking about and pointing to just 2 days ago when they crossed $140, have quickly and quietly dropped to $132.77 just 48 hours later.

It's very easy for the oil apologists to point to all sorts of abberant statistics to try to confuse you. China demand is a classic example - it's up 40% in the past 5 years. What they don't tell you is that that 40% was a rise from 5Mbd to 7Mbd but Chinese production went from 1.6Mbd to 4.1Mbd during the same amount of time causing them to import 500Kbd LESS than they did in 2003.

No, it's much better to scare you by saying 40% even though that 40% is about how much fuel we would save in America if we simply inflated our tires properly (10% x 20Mbd).

Mark Twain said "There are three types of lies: Lies, damn lies and statistics." Always be wary of people who throw them around without letting you take a look at the sources for yourself. It's hard to pick up in the text on Seeking Alpha but I try very hard to have links to all my stats. When CNBC shows you the Dec 2015 contract one day to "prove a point" and then doesn't show it again, you need to be suspicious.

Just ponder that those 378,974 contracts were traded on the NYMEX today 425,099 times. That's a churn rate of 115%! The net change in price was 1% and the net change in open interest was less than 1%. What would you think of a stock or option contract where the entire float turned over in one day? This is what goes on EVERY SINGLE DAY at the NYMEX.

425,099,000 barrels of oil were traded today, readily available to any trader who wants them delivered in July, with another 136,725,000 August barrels traded and another 73,297,000 September delivery contracts written, yet in not one of those months will more than 42M barrels ever be delivered because that is the transfer capacity at Cushing, OK.

So the ENTIRE thing is a joke. People are ordering barrels they don't want with contracts written for a place that will never accept delivery AND, if anything actually happens to disrupt supply, there is a loophole called "Force Majeure" which allows the contracts to be cancelled by the shipper due to "supply distruptions" so they are not even buying insurance.

The only thing they are insuring is that they will bleed you dry by forcing you to pay $130 a barrel for something that has a global average production cost of $42 a barrel. This is nothing less than the single largest con in human history and your "reliable sources" are a government that was elected thanks to hundreds of millions of Petrodollars of campaign contributions and a media that is owned by companies that either are energy companies or accept millions of dollars from energy companies."

Thu, 11/12/2009 - 20:46 | 129197 Anonymous
Anonymous's picture

"Notice how there are 378,974 barrels "ordered" for July and 91,509 for Aug and 94,177 for Sept and 49,177 for Oct. I will tell you for a fact, right now, that on June 24th (close of July trading) there will be LESS than 40,000 contracts accepted for delivery"

You realize when a contract is created that there is a buyer and seller? For every barrel demanded, there is a barrel supplied.

"All but 40M of the now 378M barrels that could be delivered to the US PER THE EXISTING CONTRACTS will be cancelled"

Contracts aren't cancelled, they are offset.

"by these evil, manipulative bastards in oder to create an artificial shortage of oil each month while driving up the apparent demand for the next month by rolling the contracts forward"

How does creating or offsetting an oil contract create a shortage? Or change demand?

Thu, 11/12/2009 - 18:42 | 129096 Fibozachi
Fibozachi's picture

Phil & Ilene,

 

We at Fibozachi have been avid admirers of your work for several years.  Hats off for being THE tip-of-the-spear on the NYMEX issues since well before the climactic blow-off top last year and for having harped on this serious issue for well over 3 years now. 

And thank you for helping to shed light upon actual trading issues as well as basic TA and portfolio management techniques.  May you have much continued success humorously fusing the 'funny-mentals' alongside TA.

Thu, 11/12/2009 - 18:51 | 129104 Anonymous
Anonymous's picture

Lets try this with real numbers.
Goldman buys 1 million barrels at $80 from JP Morgan.
Immediately sells 1 million barrels at $80 to JP Morgan.

How does that change the price or give either firm a profit?

Thu, 11/12/2009 - 19:24 | 129132 Apocalypse Now
Apocalypse Now's picture

This is a huge news story, huge!  Judging by some of the squid commentators here, "Me thinks he doth protest too much" and this is like a wooden stake in the heart of the head vampire.  You are striking at the heart of the beast.

The "best" business models are ones that siphon off a usurious percentage or spread from the trading of every necessary item on the planet - that's what their corrupt exchanges are set up to do.

Could a similar form of "round trip trade" also be used in internet advertising where each company advertises on each other's website (yahoo & google) in a form of revenue swapping?

An exchange like Ebay is fair because it brings parties together where they wouldn't otherwise and all costs are known by both parties.  Most of the goods there are not necessities, so there is not a constant supply / demand where buyers and sellers would be forced to come together without the exchange.

If these exchanges are using a pricing engine module with multiple input variables for price (to maximize the spread) - the DOJ could issue a subpoena to assess those variables (systematic manipulation). 

Thu, 11/12/2009 - 23:38 | 129352 JR
JR's picture

Yes. You can be sure GS was blogging today, and what better place than ZH. Excellent comment, as usual.

Thu, 11/12/2009 - 19:58 | 129157 Anonymous
Anonymous's picture

Fellow Americans and global citizens this is the fight of our lives. Destroy the plutocracy by shorting the plutonomy or there will be no future.

Thu, 11/12/2009 - 20:31 | 129180 putbuyer
putbuyer's picture

You can not compare an aggregate news site to news originators. There is nothing wrong with Drudge. Otherwise your story is excellent pending verification.

Fri, 11/13/2009 - 13:24 | 129845 Anonymous
Anonymous's picture

The CFTC currently does have access into the books at ICE.

Fri, 11/13/2009 - 21:04 | 130366 sgt_doom
sgt_doom's picture

I solemnly swear this be the last time I ever waste time replying to an ANON creature:

Gary Gensler, formerly Goldman Sachs, is the chair of CFTC -- and ICE Futures and its subsidiaries all share their books, you so proclaim?  Their Euro bookkeeping, huh..?, even as Section 2e of the CFMA exempts them?

Sat, 11/14/2009 - 13:52 | 130681 ilene
ilene's picture

Hi all - I asked Phil several of the questions I've seen in comments regarding how the manipulation is specifically done.  Here's his response:  http://philsbackupsite.wordpress.com/2009/11/14/personal-correspondence-with-phil-regarding-how-oil-speculation-affects-oil-prices/

Sun, 11/15/2009 - 02:03 | 131064 Fibozachi
Fibozachi's picture

Great info Phil!  And thank you, ilene, for not only taking the time to share it with us but also for relaying Phil's answers.

 

A few pointed questions with underlying comments provided for contextual background ...

 

1)  Not even touching upon the obvious ... the FHA and the Greenspan Fed ... while "news" reports tell us that "y/o/y home sales are on the rise," further examination shows that approximately 80% of such "sales" have been to foreigners, especially within the black holes of housing that are the Las Vegas and Miami condo complexes. 

How do the machinations of synthetic demand within the oil patch materially differ from the machinations of synthetic demand across the landscapes of housing and commercial real estate?

 

2)  Were the spot price of oil not mired under the oppressive weight of the NYMEX boyz chicanery:

What might current inflation expectations (which are simply rampant) look like? 

Would 6+ Billion individuals still be so universally convinced that not just inflation but rather hyper-inflation was coming, soon, somewhere? 

Since the price of oil (much like the $ US Dollar) is so very palpable for each of us, might the rampant collusion within the oil patch be implicitly, if not explicitly, of design by 'the collective powers that be' in order to help obfuscate the true extent of the deflationary depression that continues to rage on all about us? 

Since the facts on the ground such as PPI, CPI and the velocity of US $ M1/M2 (-7.6% y/o/y) are unmistakably unison (in screaming that a Godzilla-sized specter of DEflation looms just over the horizon) ... without the recent full throttle of M2, nominal ATH's in gold as denominated by the $ US Dollar (and the US $ alone) and the reflation of oil to captivate the public ... would we all still be so thoroughly consumed by the infinitesimally small prospect of "hyperinflation just over the horizon" ?

Sun, 06/05/2011 - 07:45 | 1340817 sun1
sun1's picture

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