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Let's Break the $peculator$
Let's Break the $peculator$
We followed through with our plan from last week, which was essentially: "If some idiot is stupid enough to pretend to want to buy oil at $103 for July delivery - we are happy to sell it to them." This comes from our fundamental concept that oil is in no way, shape or form WORTH $103 per barrel and that, even if it were, consumers can't AFFORD $103 a barrel and, even if consumers were mindlessly throwing themselves another $2Bn a day in debt ($10Bn globally) without cutting back on fuel consumption - that the Dollar, which oil is PRICED in, is also undervalued and will correct up and kill the PRICE of oil at some point. (chart by Dave Fry)
Even this morning (Wednesday), we got another chance to short oil at $103 and now (7am) it has crossed the $102.50 line so that's a winner for the $103 crowd, and a new entry opportunity for others on the $102.50 line on the futures if they cross below $102.50 again (nickel stops to keep risk low). This is not complicated guys - "THEY" are willing to fake a massive demand for oil but this game only works if nobody makes them pay.
When we short a barrel of oil on the futures, we MAKE THEM PAY for the barrels that they pretend they want. Right now, open interest on the NYMEX is 376,620 contracts for July delivery, which closes in three weeks on June 21st (contracts open that day must accept delivery during the month of July) and that's 376 MILLION barrels of oil that "THEY" are currently pretending they want delivered at $103 a barrel within 2 months. That would be 40 days worth of US imports in a 30-day period all delivered to a terminal in Cushing, Oklahoma that has a 40M-barrel handling capacity for the month.
Usually, what these crooks do is to "roll" the contracts to the next month. In June they pretended to want 400M barrels but, by expiration day, all but 20M barrels worth of contracts (20,000) had been rolled or canceled. I had made a similar observation when interviewed in late April, as oil was $112.79 a barrel and there was "only" fake demand for 287M barrels and Goldman was fanning the flames with $200 oil calls. By May 6th those contracts fell to $94.77 and were still $95.35 on the 17th as traders desperately tried to unload their fake demand contracts into expiration.
They got away with an easy roll in May and now they are getting brave again so I am going to point out that we can take them down again by offering to sell those 376M barrels of oil for $103 per barrel. You see, anyone can pretend to want 1,000 barrels of oil, the margin on the NYMEX futures is just $6,000 to control $103,000 worth of oil. By accepting the BS offers to buy 376M barrels of oil that is being made by speculative jackasses, we, the people can force the speculators to buy $39Bn worth of oil for July delivery because we won't let them just cancel or roll - will we?
This would flood the US markets with oil for the entire summer and, more importantly, bankrupt many small speculators and, if we're lucky, destroy one or two investment banks - simply by making them actually do what they pretend they want to do every month - which is buy 20 times more oil than anyone really wants.
Is there a risk? Of course there is a risk - Lloyd Blankfein (for example but I'm sure he would never do this) could pick up the phone and pay 4 Nigerian teenagers $100,000 to fire a shoulder missile at a refinery or he could hire some Somali Pirates to take a tanker hostage (in fact, isn't there a tanker company that the CTFC is already charging with manipulating the markets?) or he could wire $10M to any one of several OPEC nations to have the leaders or the opposition stir up a little trouble and then have his flunkies at CNBC blow it totally out of proportion.
That's what makes oil trading so much fun - it's all based on factors that are out of our control and half a World away so the speculators have dozens of tools available to them to manipulate the market BUT - just like the speculators - we only have to PRETEND to want to sell oil for $103 a barrel. We can also roll our sale so the real bet is that demand for oil will break long before they can sustain a price spike that will break our short position.
I love this plan. Let's use their own easy-to-manipulate system against them! It's very simple, we just need 376,000 people to short one oil contract each and, as long as we are willing to gut out an engineered spike, we should be able to break them.
Oil topped out at $147 in 2008 so if that action were to repeat, you'd be looking at a $43,000 paper loss but keep in mind that, at the end of 2008, oil was $35.13 a barrel and you would have a $64,000 profit, so this works even better if you plan to average in to sell 4 contracts: 1 at $103, 1 at $123 and 2 at $143.
Do you know who should do this? Barack Obama! The President just so happens to have 726 Million barrels of oil in the Strategic Petroleum Reserve. The Republicans want the US to sell some assets so why doesn't the President simply offer to give the speculators what they pretend to want? The oil would still be in America, it would be delivered to Cushing and put into private storage (which is already swollen with over 1Bn additional barrels for a total of 1.78Bn barrels of petroleum stored in a country that imports just 9.4M barrels a day so that's a 189-day supply of imports - an all-time record!) where we can offer to buy it again when the price falls below $90 for a quick $5Bn profit.
How could the Republicans not love a plan that makes $5Bn a month selling oil? There's no need to drill baby, drill, when we already have a 6-month supply in storage that we can roll over at will (and, when you consider that Canada and Mexico supply over 5Mbd of our imports, it's really a full-year supply of OPEC crude). If Obama is unwilling or unable to do this, then I call on our "friends" at OPEC to put their oil where their mouth is and simply sell into the speculative frenzy or even our buddy Chavez - who once offered to sell us all the oil we wanted under long-term contracts for $50 a barrel but was instead vilified by the Bush administration and targeted for overthrow. Fortunately for Chavez, the Bush administration was already busy overthrowing Saddam Hussein, who had the nerve to try to bypass the den of thieves at the NYMEX and trade oil directly (just a coincidence, I'm sure).
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I've never seen a tender sheet from the Iraqi Oil Ministry for oil of a chemical composition that would even be eligible to be delivered against either the NYMEX WTI or Brent crude contracts. Since actually only a TINY percentage of the world's oil is of such a composition to be deliverable against either of the two primary hedging vehicles, then perhaps the situation is a but more complex than presented.
How do you save your skin when you are drugged on speculative plays at 30/1 + ratios? Easy hot money made you what you are on the roller coaster up, and now, as you are part of the club, you have insider knowledge of the manipulated deals of the 600 T derivative heap that smells to high heaven of stinking, explosive manure, puking anaerobic generated methane gas, all the while you stash your gains hidden in the tax havened recesses of the shadow banking play that feeds the asset levitated beast thanks to QE...Oh boy, it's time that the Oligarchy found the philosopher's stone, 'cos the roller coaster is now running out of gas and the levitation may come to a fart assed flat tyre pass....Bubble re-implosion trouble is the worst nightmare for the Oligarchy crowd as that means the night of the long knives begins in the military bee hives of the surrogate underworld of "hit men" now out of a job and long on the revenge trail...Oh, the Rubicon...that beckons on...as the reckoning goes long on main street hysteria...Maybe the Sauds will come to your help as they did in 1982 when they opened wide the tap for Reaganomics to unfurl its toxic whirl on the tail spun world caught up in the global financial twister. Even the Sauds can't pull that trick a second time as the Chinese syndrome is now on a roll and the world has shrunk to the size of a shriveled nut. So goodbye to all that...sweet chariot...swing low, swing long...and await the coming storm.
"Usually, what these crooks do is to "roll" the contracts to the next month. In June they pretended to want 400M barrels but, by expiration day, all but 20M barrels worth of contracts (20,000) had been rolled or canceled. I had made a similar observation when interviewed in late April, as oil was $112.79 a barrel and there was "only" fake demand for 287M barrels and Goldman was fanning the flames with $200 oil calls. By May 6th those contracts fell to $94.77 and were still $95.35 on the 17th as traders desperately tried to unload their fake demand contracts into expiration."
So idiotic. Those "crooks"roll the contracts to a future month because contracts expire as time rolls by. And you cannot just "cancel" or forget futures contracts or options, you must close out the trade or it will be closed for you.
In the beginning some exchanges in products suitable to physical delivery began as cash houses with some time options for some clients. That was long ago. No mill can dump their unwanted wheat on the futures market. It can on the cash market. The difference between the two is night and day.
Like tomorrow, futures never arrive. Contracts expire so the trader must move out to the future, tomorrow.
(Once gave a speech to the Cattlemen's association on cattle futures. In the Q&A, the big question was how to get the cattle to Chicago. Not exactly a successful speech.)
Futures are to hedge PRICE risk/time/change and are not a cash market for exchange of product. Commercial interests need speculators to take on the risk of price and other time related events in the FUTURE. If you outlaw the specs, you do not have a futures market but a CASH market. The Cash Market is where you actually buy and sell real time physical quantities. In the futures you get back your margin plus or minus price change. No product.
What is hilarious is the notion that the futures market is pulling a trick on the players. The only problem is the ignorance of the mechanics of the game, not the game.
On margins. You need to put up enough money to cover the flucuations that can or are likely to occur over few days time. But you are liable for any thing that happens, predictable or not. And the contracts may not be even be traded for days, hard unpredicted frost, war, corruption, huge buys or sells, etc.
No buyer or seller can force any other futures participant to deliver the product. All you get is the difference in price, the profit or loss, added or substracted from the account. If you don't like it go to dealer and buy or sell the product. Or filling station. At the station you can either buy or not buy. Actually, this is what determines the prices, not futures, or dealers, or pundits, or idiots.
But the idea that Goldman is pretending to take delivery on the oil but does a fast one by getting out the expiring contract and keeping the position in a more forward contract is the ultimate stupidity. There is no futures contract that does not expire. There is no choice involved.
If you want gold, silver, bacon go to the dealers. If you want to hedge or trade the price, go futures.
" At the station you can either buy or not buy. Actually, this is what determines the prices, not futures, or dealers, or pundits, or idiots. "
I did an interview with a long time oil trader recently, and will have that written up hopefully soon, but he was explaining that the futures market for oil is multiple times larger than that of the cash market, and the derivatives market is again magnitudes larger than the futures market; these financial markets have greatly distorted the prices in the cash market - like wagging the dog in this case.
And YOU sound like an oil speculator.
(One of the guys the world is rooting against. Phil is only giving us, the world, some hope.)
Perhaps, I should add to the post, I don't think Phil is really suggesting we do this plan. Seems to me it's more like the idea that maybe if we all stop paying our credit cards, or paying our mortgages, or going to work, etc, maybe if we all get together and (fill in the blank), we can cause some real changes.
Also, Phil uses stops (and hedges), and to answer another person's question above, I think Phil is saying that oil over $100 is not sustainable now, given the state of our economy - but that doesn't mean it can't go higher for a while.
Once again the idea that you have some secret sauce that allows you to sell oil at $103 ( I thought it was $100 or above last week) with impunity is ridiculous. How well did this strategy work when oil traded up to $113 a month or so ago? I know you sold it all the way up waiting for the $10 down move only to move right back up again. Then of course you covered on the dead low at $94 only to wait to sell again, must be great to be you.
What does your broker say about your ability to pay your margin calls? Your account better be well funded. Your example regarding the move to $147 is even more ludicrous. Continue to add to shorts during a $47 dollar move to the upside, comparing that loss to the possible gain if you happened to buy the dead low at $35.
Really!? I have been involved in the NYMEX since 1980 and I have to say your analysis is probably the most egoistical and infantile I have ever seen. Make sure that you sleep with one eye open in case anything ever goes boom in the mideast. Make sure your wife knows what you are doing so she ready to live on the street because of your trading style.
Why don't you just go to Vegas and bet black every time then double the bet and bet it again if you lose that would be as good a strategy as you propose for trading oil.
Lastly, about your plan to short a contact to force the speculators out, what do you plan for everyone to with their short on the last trading day, make delivery? Your are a tool.
Tyler what is your call on this Phil guy?
O. T. Comments are not neccessary.
Watch the video. SCARY
http://dont-tread-on.me/adam-kokesh/
I’m with you in spirit, but, I would not advise anyone to be shorting the prompt or near month oil futures contract unless they actually have the ability to make physical delivery. That’s how squeezes happen in the futures market, when you must buy or sell the futures to close out your position and the big Wall Street traders know it. They’ll get in front of you in the futures market and push you into bankruptcy before they let you out of your position. They’ve done it to large companies before and they will do it every time they see a chance to make a buck at it. The devil may care is their attitude if it drives up the price of gas at every pump in the country in the process. You see, unlike you, they do have the fallback ability to take and make physical delivery at Cushing (yea, the bastards really do), so you really can’t beat them at their game. Your fundamentals are right but using the futures market alone to accomplish your goal is a lousy mechanism, because, it’s their market. They control it. You can't win. An Openhiemer analyst in another recent ZH article summarized it well with a comment along these lines: it’s not the big oil companies, OPEC suppliers, or a bunch of random speculators that control and manipulate the price of oil futures. It’s the biggest Wall Street investment and trading banks like Morgan Stanley, J. Aaron (Goldman), Phibro (ex Citi), JPM, etc. Surprise, sur-fucking-prise.
The comment on physical delivery is not correct. Settlement in cash is allowed, preferred, and in most cases mandated. This settlement is the amount you lost or made on the trade. Their may be bookeeping charge for the extra effort needed to clear the trade.
" It's very simple, we just need 376,000 SPECULATORS to short one oil contract each...."
Corrected that for you.
I live by Fort Knox, no soldiers are guarding it. There are Treasury Police guarding it, usually retired MPs or people like that. I think there must not be too much gold there because they are generally fat lazy losers.
In the movie "Goldfinger", Auric Goldfinger claimed that there were 41,000 soldiers guarding the gold. Boy, these are really sad times when you can't even trust a fictional movie villian anymore.
I would rather have the US sell off its gold reserves (if it actually has any left). Sure, it would probably cause a temporary price drop. But what a bargain for gold buyers!
Also, we could sell off Ft. Knox and we wouldn't need to pay all those soldiers to guard it.
Warren Buffett's 2002 description of derivatives as financial weapons of mass destruction.
The futures market is such a WMD once naked shorts are called on everything will explode.
Don't bet against the house
You go get them oil vigilantes
There is no speculation!
None ... right?!