Oil Futures Fake Out

Oil Futures Fake Out

From Phil of Phil's Stock World

The CROOKS (allegedly, just indictments so far) at the NYMEX are running a scam and they have NO INTENTION WHATSOEVER of accepting delivery of even 1/10th of the 367M barrels they had as open contracts last week. In fact, Wednesday (June 8) they traded their contracts 454,043 times - isn't that amazing?  It's a 123% daily churn rate!  Of course, it's easy to churn 454M barrels of crude because the only sucker that ends up paying for all those fees is YOU, the end consumer of crude.  All those fees are passed on to you as part of the price of oil.  

Don't forget to thank Uncle Lloyd and Uncle Jamie (who was whining to Uncle Ben about how stopping him from screwing over taxpayers is bad for the economy), when you fill up your tank, as Exxon's CEO Rex Tillerson told us last week, without those speculators, a barrel of oil would be $70. You can see Jamie sweating as President Obama said a Justice Department probe will examine the role of “traders and speculators” in oil markets and how they contribute to high gas prices. “The attorney general’s putting together a team whose job it us to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators,” Obama said April 21st in Reno, Nevada. “We are going to make sure that no one is taking advantage of American consumers for their own short-term gain.”    

The group, which includes representatives of federal agencies and state attorneys general, will check for fraud, collusion or misrepresentation at the retail and wholesale level, the Justice Department said in a statement last week. The group also will examine investor practices and the role of speculators and index traders in oil futures markets.  One can only hope that Dimon's squeaky wheel will get the grease (prior to having a Government probe shoved up his ass!).   

Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well which speculate, and let's not forget the Fabulous and Alleged Koch Brothers (I say "Fabulous and Alleged" because, if you don't, you hear from their attorneys, which is why no one ever says anything about that alleged scam!).  In June 2006, oil traded in futures markets at some $60 a barrel and a Senate investigation estimated that some $25 of that was due to pure financial speculation. That would mean today that at least $40 of more of today’s $101 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London, it is more likely that as much as 60% of today oil price, is pure speculation.

No one knows officially except the tiny handful of energy trading banks in New York and London and they certainly aren’t talking. But I will point out that oil traded between $35 and and $50 between November of 2008 to May of 2009 - AND NO OIL COMPANIES HAD A LOSING QUARTER!  

What does that tell you about the real cost of oil?  It's not XOM that makes the lions' share of the excess profits as speculators drive the price of oil from $40 to $100, it's JPM, GS et al and THEY HAD LOSING QUARTERS when they were unable to rip off the American public for an extra 100% at the pumps through their blatant manipulation of the energy markets (allegedly).  

I am harping on this theme this week because we, the American people, have an excellent opportunity to do what I very much doubt Obama's investigation will be able to - we can stop energy speculation and drive prices back down and all we have to do is agree to sell oil to these jackasses for $101 a barrel.  Last Wednesday, I pointed out that there were 367,620 open contracts (1,000 barrels per contract) on the NYMEX at $103 per barrel and I said that the number was total BS and that real demand was 35M barrels at most.  One week later, how many contracts are still open for July delivery?

Month  Click for chart	Session									Pr.Day			Options
	Open	High	Low	Last	Time	Sett	Chg	Vol		Sett	OpInt
Jul 11	-	-	-	99.01	Jun 08, 19:16	100.74	454043		99.09	288420		Call Put
Aug 11	-	-	-	100.86	Jun 08, 19:16	101.29	138476		99.69	140481		Call Put
Sep 11	-	-	-	100.14	Jun 08, 19:16	101.78	88449		100.23	130183		Call Put

288,420!  In just one week, we have pressured them into closing 22% of the contracts by simply offering to sell them the contracts at $103 - oil fell all the way to $97.24 as speculators would much rather take a $456,192,000 loss on the 79,200 barrels they dumped (so far) than get stuck accepting delivery of 79,200,000 barrels of oil that they pay us $8,157,600,000 for (at $103).  We "sell" them the barrels by taking naked short positions, using the same loophole in the NYMEX that the speculators are using to fake their demand.  We, of course, don't have any oil to deliver and the contracts require us to do so by July if we are foolish enough to hold them to expiration on June 21st. (Note: Futures buyers can roll their contract to the next month, they don't need a buyer for the front month to roll, they just pay the spread to the NYMEX.  Their choices are to sell or roll each month, and most roll, so it's not even like the demand for the next month is real, it's just the crap they couldn't sell last month rolling over and over again but the "open interest" is interpreted as demand.)   

So Futures Trading is petty much a very dangerous game of financial chicken - they have no intention of buying barrels of oil (because they have no use for them at all) and we have no intention of selling them (because we don't have oil wells) and you can lose Billions as easily as you can make them.  What we are doing is accepting their fake offers to buy oil, which is what they do to drive up the prices. Then people like the Kochs (allegedly) and JPM (who hire supertankers to take oil off the market so they can flip it for a profit), who do have access to physical crude, can shift costs of their artificial shortages to the American consumers, who end up paying 100% or more than the oil is actually worth in an unmanipulated market.  

On a global basis, this is a $2.5 TRILLION annual scam that funnels money from the bottom 99% to the top 1%, but mostly to the top 0.01%. Those guys will do ANYTHING to keep the price of oil as high as possible, no matter how much suffering it causes and no matter how much damage it does to the Global economy.  The scam works because nobody calls their bluff - these speculators do not REALLY want 288,420,000 barrels of oil delivered to them in July.  That would cost them (at $101.60) $29.3 Billion!  It's not just the cost of the oil, they would also have to find a place to put 288M barrels of oil and the US storage system is full. So once we drop 1,000 barrels off in Jamie's garage and put another 2,000 barrels in Lloyd's swimming pool (84,000 gallons) - they begin to run out of space pretty quickly.  That's the formula that can give us our "Trading Places Momemt":

How do Winthorpe and Billy Ray get rich while bankrupting the Kochs Dukes?  The Dukes are nothing but vile speculators who feel they have inside information and are attempting to buy up all the frozen orange juice futures ahead of the crops report.  They instruct their floor trader to buy contracts at pretty much any price, expecting to sell at an even higher price once the data is announced.  Obviously, the two old men have no interest in buying Billions of gallons of orange juice for physical delivery.  In fact, they are buying all those contracts on margin, using the tremendous leverage of futures contracts to control hundreds of times more orange juice than they can possibly afford to buy.  

So, to totally screw speculators like these guys, all you have to do is what Billy Ray and Winthorpe do in this clip. They wait until the speculators drive the price past any reasonably affordable level and then they simply accept their offers to buy. The speculators, especially at the NYMEX where they churn over 100% of the contracts every day, operate under the assumption that NOBODY actually wants oil and they are all in on the same scam, just churning their barrels and racking up fees that will be passed along to the American consumers - until they can roll their open contracts to the next month and do it all over again.  

We throw a wrench into the works by simply accepting their offers to buy and NOT flipping them over.  As the day drags on and more and more people accept the buy orders but don't have the courtesy to flip the barrels back into the churn, the speculators begin to rack up more and more open contracts and that costs them more and more margin and suddenly, it's not a funny little clubby game anymore, now someone (us) actually EXPECTS them to pay us $29.3Bn for the 288M barrels they pretended to want.  

What can they do about it?  Well, they could screw us by pretending to want another 200M barrels at $105.  That would hit us for a $4 loss per contact at $5 per penny or $2,000 and, when we capitulate, we have to BUY contracts (because we only pretended we had oil to sell when we naked shorted) to cover our sales.  That causes what is called a "short squeeze" as people who had short positions are forced to buy to cover, further driving up prices.  That's why we scale in and scale out of positions and use razor-tight stops at our resistance lines.  If they want to take oil up to $105 again - that's fine with us, we'll lose a few nickels along the way but they'll have to come up with another Billion Dollars to accept delivery.

 

That's the danger of shorting the futures but I will tell you now as I told you last week, it's not very likely because THEY DO NOT WANT 288M barrels of oil to be delivered to them in July and they will panic and they will sell those barrels until there are LESS than 40M barrels left to deliver.  In order to get out of their obligation to buy oil from us for $101.60, they have to find another buyer but, if only 14% of the contracts remaining have real buyers - that should prove difficult.   

On Wednesday, OPEC failed to come to a supply agreement and Obama said he would release oil from the Strategic Petroleum Reserve if necessary and also, we had an oil inventory report that showed a 2M barrel BUILD in gasoline over the holiday weekend, indicating a tremendous drop in demand.  You would think that would drive prices DOWN but, instead, oil went UP yesterday, from $98 at 8:30 am to $101.89 at 12:30.  As we planned yesterday morning, we waited patiently for our target to be hit and then we went short again.  

I frankly didn't expect to get another chance to stick the speculators for oil at $101.60 but here we are this morning as Criminal Narrators Boosting Crude on TV this morning are pulling out all the stops to create the impression that there is suddenly a shortage of oil.  You will never see the above chart of the US Crude Stockpiles on television because oil companies and speculative IBanks are their primary advertisers (along with Monex, but that's another post) so all you will hear is an endless supply of BS with "analysts" who lie to the public and use the whoreish (for lack of a better word) Mainstream Media to play to retail investors fears and drive an endless stream of suckers into speculative bets that have no fundamental basis whatsoever.  

It's important to bring in the retail crowd.  They are the "bag holders" who end up taking the contracts off the IBanks hands at the very top of the market (usually a couple of days after GS predicts $200 oil) and they are the suckers who have their 401K money tied up in doomed ETFs like USO, which was at $40 in June of 2009, when oil was $70 a barrel and is still at $40 with oil at $101.60 a barrel.  What a stupid F'ing thing to buy!  Yet retail bagholders own $1.4Bn worth of futures contracts and, even worse, THEY TELL THE HEDGE FUNDS WHAT THEY ARE GOING TO TRADE IN ADVANCE!  No wonder the people who invest in this POS get raped on a monthly basis!  

Most commodity ETFs are just clever ways to screw retail investors into taking delivery of whatever hedge funds are dumping but, as you can see from the above chart, USO is one of the worst as their constant rolling over of contracts and 0.45% "management expenses" virtually guarantees long-term holders nothing but PAIN.  If you want to invest in oil long-term, buy XOM - they are UP 40% over the same period (and they pay a 2.4% dividend while you wait.  All you are doing when you buy USO is the same thing the speculators are doing at the NYMEX, pretending you want oil that you will never accept delivery of so all you can do is hope to find a bigger sucker tomorrow to take the contract off your hands.  As you can see from the performance of USO - there are no bigger suckers - the buck (or the barrel) stops right there!

To be clear, if you are playing along at home, futures trading is dangerous!  If you are going to play you need to scale in and use stops, as outlined in last week's post.  You also need to take profits and run on small reversals - we discuss those pivot points every day in Member Chat but you can just keep in mind that every 0.25 cross is very significant and, if we are lucky enough to get that big of a move, we usually use that .25 line as our next stop.  That means we ride these contracts down in a series of .25, .50 and $1 moves and we stop out with .05 losses - see the logic? All we have to do is count on the speculators to keep bidding their contracts up once we leave them alone and then we get a chance to short them again.

As we get closer to June 21, the game becomes much more serious - kind of like playing chicken at a cliff! Just make sure you are the first one to slam on the brakes, not the last and make sure you have a professional investment adviser to help you manage the trades but, if we can get 288,000 people to short just one contract each, we can stick these bastards for Billions of losses and, eventually, the game will fold and this whole country will reap the benefits.  

I will update our progress each day between now and the 21st - a great experiment in audience participation!

Try out PSW's Stock World Weekly, free, here >

Comments

[falak pema]

Well now we know why the US economy is STRUCTURALLY on fragile legs...cos it was fed on injected steroids for decades! It got hooked on it... And now it has to lose that habit... Its always been the irony of all empires...one day your strongest point becomes your weakest point precisely because you put ALL your eggs in THAT basket...and then...its tipping point empire! Time to cut and run! but where to? The wrong way to go is to UP the ante... up & up & up ....until it is 100 times worse than when it was manageable without bringing that glimmer of light at the end of tunnel...bitchez!

[Urban Redneck]

THE UTTER LACK OF BASIC COMPREHENSION OF THE PETROLEUM INDUSTRY IN THIS POST AND SOME OF THE COMMENTS IS SHOCKING.

WTI is a light sweet crude oil BENCHMARK.  It is denominated in US dollars, and the contract is deliverable in CUSHING, OKLAHOMA.  It is used as the pricing BENCHMARK for much of the oil which is consumed in the US, even though MOST OF THE OIL CONSUMED IN THE US IS NOT WTI CRUDE.

Phil, of Phil's Stock World, might know something about stocks, and perhaps even stock hedging.  There is a stock BENCHMARK/INDEX called the S&P500, there are S&P500 futures and options, as well as a whole bunch of ETFs based on the S&P500 index (which has both Exxon & GE weighted at over 3%).  Guess what- THERE ISN'T ENOUGH EXXON OR GE STOCK STOCK IN THE WORLD TO COVER TRADING VOLUMES IN ES MUCH LESS ALL THE ETFs AND OTHER S&P INSTRUMENTS.  Where is the indignant complaint of the fraud that is the equity/derivative trading of the S&P500 or GE?

In stock trading there is an accepted hedging strategy of being long or short a specific equity and taking the inverse position on a related index BENCHMARK/INDEX/PROXY.

When you are hedging in the REAL WORLD as opposed to the SPECULATIVE WORLD, the practice is generally to lock in a supply contract for the actual material consumed and to hedge the fluctuating price paid under that contract with a derivative contract on a BENCHMARK/INDEX/PROXY product that has a deep and liquid enough market to meet the hedging demand.

Alternatively, on a smaller scale, if you have ever engaged in a gold transaction with a pawnshop, cash-for-gold outfit, or coin dealer, it might shock you to learn that when they hedge their risks, it is probably with Comex gold bar contracts, and not futures contracts against random pieces of jewelry or 1oz coins.  

Those with a memory span that extends even a little before the subprime collapse, may have some recollection airfares in the US between 2003 and 2007.  Southwest Airlines tickets were extremely competitive because Southwest had significantly HEDGED its fuel costs.  Southwest Airline's fleet of Boeing aircraft won't fly if you put WTI crude oil in the fuel tanks, even though Southwest can pick up WTI crude oil one state north of Southwest's Dallas, Texas headquarters.  The size of the futures/swap markets for products that might get a Boeing aircraft airborne are not large enough for major airlines to use as a primary hedging vehicle. 

Then there are all those pesky foreign airlines, like Luftansa, Air France, BA, Singapore, Thai, Cathay Pacific, Air China, China Eastern, China Southern, Quantas, TAM- they all need to hedge JET FUEL cost risk, and there aren't even CRUDE OIL futures markets in most of their home countries to use for hedging, so they come to the US.  Fortunately for them, when they buy jet fuel from a refiner in the country in which they operate, the crude oil feedstock for the refinery is priced in US dollars.

Then there is all that other stuff that is made out of a barrel of crude oil- other than gasoline, diesel, and jet fuel.  Unless you are a troglodyte, you may have traveled on road, paved with asphalt.  If you are reading this- you are probably at a computer, made with plastic, perhaps sitting on a plastic chair, with a plastic drink bottle close by, and surrounded by countless other things made of plastic, which will eventually find their way into plastic garbage bags on their way to the landfill.  All that plastic is made from crude oil, and the manufacturers of those products need to hedge their costs, and tend to do so against crude oil.  I case you haven't- you should really examine the the NYMEX/CME's amazing variety of asphalt and plastics futures.

In 2009, the US consumed 18.7 million barrels of oil per day, or almost 23% of global consumption, and since the US produces less than 9% of the worlds oil- it was importing about 14% of the worlds oil, and are currently lucky enough to be able to pay for that oil in US dollars.

The worldwide oil trade, which is CURRENTLY DENOMINATED IN US DOLLARS is over $2 Trillion PER YEAR.  These is ACTUAL trade, creating demand for UNLEVERED dollars which are used to purchase a product that is consumed, not rolled to the next delivery.  To put this $2 TRILLION in perspective- the global volume of currency derivatives outstanding at the beginning of this year only had a market value (which is leveraged) of less than $2.5 trillion, and is more than 11.7% of total derivative volume outstanding worldwide, according to the BIS.

If the worldwide oil trade WAS NOT denominated in US dollars, the demand for US dollars would be significantly less, and thus the price of CRUDE OIL would be significantly higher in US DOLLARS.

Unless you hate $4.00 per gallon gasoline in US because you really want $8.00 per gallon gasoline in the US, then THE LAST THING YOU SHOULD WISH FOR IS THE OIL MARKET MOVING AWAY FROM USD DENOMINATED WTI & BRENT NYMEX/CME CONTRACTS.
      
http://www.cmegroup.com/product-codes-listing/nymex-market.html          
http://www.bis.org/publ/otc_hy1105.pdf

[surfersd]

Flat trader. There is no question that there is speculation in the oil markets. Remember though leading up to move to $147 was the world was going gangbusters, with yoy Chinese demand up something like 8% and Israel was talking about bombing Iran just like the years that Iraq was bombing Kharg island. The flush to $38 really $33, was an implosion of all spec assets. Gold remember went from $1040 to $650 the DXY from 75 to 93. There is no question that the Squid is gaming the system, lucky you weren't the Sem Group http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-oil.html . Oil shouldn't have gone to 147, and yes the squid was partly to but, all markets have done this beans, silver, sugar, speculation is what drives all of this. The problem Phil has is that he uses statistics like demand fell 10%. Oil is not being artificially kept up, is it overpriced some time sure, but it is underpriced sometimes as well.

Read some of the Peak oil theory guys like Simmons and Martensen, they might want you to take a close look and what phil says.

[surfersd]

Phil, it is unfortunate that you continue to post your stories about oil, when you obviously have no real knowledge of how the physical oil market works. Currently, the marginal barrel in the world is crude from the oilsands in Canada, which has a marginal cost around $80-85. When the price drops below that supply slows and price goes up. The differential in the market now is a function of many things, Mideast strife (Libyian oil shut-in), lack of new production coming on line (our gulf coast drilling slowed), increase in demand outside the OECD and weak fiat currencies.

By the market trading at a premium to the cost of production it encourages new supplies to be explored for. If demand goes up with no new supply then prices rise until demand slows.

Current physical cargos of Brent crude are trading at $118.55 for July. Do you really think that this is an artificial price? Your understanding of the delivery mechanism for crude is that of a 5th grader. In all futures markets delivery is only a small percentage of total open interest and volume. In your world you could cram corn prices down to a dollar by forcing people to take delivery. Millions of barrels trade physically off of the exchange prices and through the EFP (Exchange of Futures for Physical) millions more are delivered.

Just let me know how your short does when QE3 starts and Al Qaeda lights a in fuse in Saudi Arabia.

Tyler this Phil guy is giving ZH a bad name.

[flattrader]

Explain the conditions that took oil to $148 and then crashing back down to $38 when as Ilene has pointed out demand only dropped by 10%.

The run-up was bullshit...they trotted out a convenient excuse based on tension between Iran and Israel.

It was a tranfer of wealth.  The Squid had a target of $150-200 at the time.

[pitz]

The crashing of oil was a massive transfer of wealth from oil producers to financial elites in the USA.  Motherfuckers are manipulating oil to the downside. 

[tiger7905]

Don Coxe Update, recommending a focus on the food commodities over fuels, surprise surprise.

http://goldandsilverlinings.com/?p=1194

[Concentrated po...]

I liked the part about Billy Ray and Winthorpe.  For every buyer there's a seller.  And for everyone that bought a barrell of oil they didn't need and must close out or roll before delivery there's a seller who sold oil he didn't have that must buy or roll before delivery...This whole speculators crap is a straw man. 

We stopped drilling in the gulf, the chinese are using a lot, the dollar is in the crapper, the arabs are running out or refusing to pump as much, obama never had a real job and still can't interpret the constitution, bernanke is a sociopath.  There are many reasons for all of this, and the speculators as scapegoat are very convenient. 

[mkkby]

This whole article is retarded.  You're going to put the banks out of business by pretending a couple thousand small investors will short oil, and bail at a 5 cent stop?

[ilene]

Your comment reminds me of several questions relating to a previous article.  I asked Phil because I didn't know, and here's what he wrote to answer these following questions:   Question 1. I disagree strongly with the theory that speculators are driving up prices and will keep them high and rising. If speculators are indeed driving futures prices higher, then prices will collapse sooner or later.  Higher prices are going to stimulate supply and constrain demand, and the glut of oil on the market will inevitably cause prices to collapse. Besides, for every long position in crude futures there must be a short, someone willing to deliver the oil in the future.  2. Anyone curious about the other side of the trade? That is for every long there is a short...? Phil's response:  They can roll the contract to the next month, they don't need a buyer for the front month to roll, they just pay the spread to the NYMEX.  So their choices are sell or roll each month, and most roll, so it's not even like the demand for the next month is real, it's just the crap they couldn't sell last month rolling over and over again but the "open interest" is interpreted as demand when, in fact, it's lack of demand that drives it.   Yes, prices do collapse sooner or later, like they did in 2008 when they fell from $148 to $38.  If there was any real demand for product, how could it fall so much?  Did Toyotas go from $40,000 to $10,000?  Did bread drop 75% in price, did clothing?  Food? No, that's silly - most things have some fundamental demand backing the pricing but oil (futures contacts) had almost none, which is why it's price can fluctuate so wildly - the price of oil is determined largely by speculative interest, which can go up or down 75%, not demand, which barely dropped 10% during the crash. 

[flattrader]

Excellent explanation.

I've pointed the same thing out to many people regarding what happened in 2008.

(minus the Toyotas, bread and clothing examples)

It was merely sector rotation.  But, a lot of middle and working class people got thrown off the ride and lost houses and jobs.  That run-up in POG was the straw that broke the camel's back for paycheckers and small businesses.

[pitz]

+1

[flattrader]

The average middle class Tea Party idiots in this country have no idea they are cutting their own throats.

– 2010: Koch’s Tea Party front groups and lobbyists fight financial reforms designed to reign in the unregulated energy market. While Americans for Prosperity, as well as other Koch fronts, decry the Wall Street reform bill debated in Congress, Koch lobbied to water-down provisions of the bill related to derivatives. The sweeping Dodd-Frank reform bill contained broad new powers for the CFTC to crack down on excessive oil speculation, while also requiring that derivative are eventually traded on a regulated and open exchange.

http://thinkprogress.org/report/koch-oil-speculation/

Koch brothers laugh all the way to the bank while you and yours twist in the wind.

Keep it up "patriot heroes."  The Kock Sucker Bros. are doing an excellent job of having us claw at each other over "union representation" while they make off with the real money.

[Urban Redneck]

Hey flattrader-

When Lao Tzu said, He who speaks, does not know. He was talking to you. 

[flattrader]

No doubt you board the bus with the other cannon fodder to attend the fake rallies they orchestrate.  Is the box lunch tasty?

[Urban Redneck]

I wouldn't know about their boxed lunches, since I am not even particularly a fan of their work within the oil industry.  But then I am not an ideological slave blindly serving a half-witted master and regurgitating "articles" with factual errors in the headline.  

[Sancho Ponzi]

Thinkprogress.org is funded by the likes of George Soros.

http://www.sourcewatch.org/index.php?title=Center_for_American_Progress

"Podesta laid out his plan for what he likes to call a think tank on steroids. Emulating those conservative institutions, he said, a message-oriented war room will send out a daily briefing to refute the positions and arguments of the right. An aggressive media department will book liberal thinkers on cable TV. There will be an edgy Web site (http://www.sourcewatch.org/skins/monobook/external.png); background-attachment: initial; background-origin: initial; background-clip: initial; background-color: initial; padding-top: 0px; padding-right: 13px; padding-bottom: 0px; padding-left: 0px; background-position: 100% 50%; background-repeat: no-repeat no-repeat;" title="http://thinkprogress.org/" rel="nofollow" href="http://thinkprogress.org/">thinkprogress.org) and a policy shop to formulate strong positions on foreign and domestic issues. In addition, Podesta explained how he would recruit hundreds of fellows and scholars -- some in residence and others spread around the country -- to research and promote new progressive policy ideas. American Progress is slated to operate with a $10 million budget next year, raised from big donors like the financier George Soros."^[4]

[flattrader]

Does the above somehow change the fact that the Koch Suckers designed and originated the derviatives?

Yeah...I didn't think so...

You have no other or better information to offer.

You just didn't like the sources of the truth on the issue.

[JailBank]

Ha is this serious? You think the Koch brothers control this trade, but the banks have nothing to do with it? The Dodd-Frank law was never going to be anything worth a crap, come on look at the names on the bill.

[flattrader]

Banks are complicit as well.

Read the whole Think Progress article linked.

Koch Sucker Bros. were there at the beginning and created the first oil derivative product.  And have been behind EVERY effort at dismantling regulation and preventing re-regulation.

– October 6, 1986: First oil derivative is introduced to Wall Street by traders at Koch. Koch Industries executive Lawrence Kitchen devised the “first ever oil-indexed price swap between Koch Industries and Chase Manhattan Bank.” At the time, such derivatives had been limited to currency markets, and the shift of creating a synthetic financial instrument based on the value of crude oil was revolutionary. For an agreed-upon period, an oil swap is a contract where one party makes payments based on a fixed oil price, and the other party makes payments back based on the changing spot price of oil. In July of 2009, EnergyRisk magazine, a publication for commodity traders, posted a piece exploring the very first oil derivatives and Koch’s role in developing them.

Reps are their primary tools.  Tea Partiers their new cannon fodder.

[pitz]

Oil is *severely* underpriced and the dollar overvalued..  I don't know this squares with your view, but the oppression and the suppression on the oil futures market seems to be to the downside, not the upside.

[JollyRoger]

If prices were supressed, I would expect to see price and supply drop together, even as demand grows.  But here we see price and supply rise as demand slows.  Just a little Econ 101.

[mayhem_korner]

Price of oil has been falling, not rising.  Stop thinking in terms of $/bbl and you will see this.  Oil price has risen only in $.  It has fallen in gold, silver, etc.

[falak pema]

Just a step back to understand where we are in my own spectrum of things :

In 1967, when I was university student I had a passionate discussion about the function of WS and capital markets with my tennis buddy, an ivy league student from USA, on a MS exchange course in economics in the english university where I was student. He told me "you understand fuck all about capital markets and the role of WS; as it allows the small guy in the market to participate in self enrichment by taking risks when he places his investment in stock against the expectation of future return. He can chose his stock and define thus his own risk-return profile." I duly listened but was not entirely convinced as I was in those heady days of the 60s a dyed in the wool Keynesian and Government initiative oriented denier by family culture. 

As I grew up I realised there was a lot of truth in what my old tennis friend had said. But I continued to believe that the role of good corporate behavior during the 70's were considerations to balance investor return with client satisfaction, labour demands, and issues such as government tax payment and R&d issues to ensure corporate long term survivability and innovation. When Reaganomics deferled in the early eighties, all that was thrown out of the window and only immediate investor return and the quarterly report became the corporate mantra. It spread like a forest fire in this context of the "supply side age" and it disgusted me as my bosses considered me a good investment for corporate management. I had only one desire, leave that corporate environment and fend for myself as entrepreneur. I have since then.

Now in the light of this meltdown; we see in this article that even the most enlightened and articulate observers of the capital market now espouse the thesis that those who lead the WS hierarchy are died in the wool, corrupt manipulators, who couldn't give a rats ass about the common investor and democracy. It takes me back to 1967...

I don't know the answers, but I still ask these questions...like then.