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Blatant Price Manipulation Takes Place Every Day in Oil Markets

EconMatters's picture




 

By EconMatters

 

License to steal 

Every single day the oil market is manipulated, it is easy to see, right out in the open, and nobody does anything about it. It literally is like having a license to rob banks right in front of everybody, including the armed security guards.

Large Fake Order Strategy

Here is a technique that is used by large players to manipulate price in either direction, and it needs to be banned, it is outright cheating. So a trading Dom is an order entry price ladder which shows a collection of bids on one side, a typical default setting would be 10 levels deep. On the other side of the price ladder is 10 levels of asks, going from nearest to farthest away from the current, or last traded price in oil.

For example, if oil is trading at $96.00, there will be asks going from 96.01, 96.02…96.10 and conversely there will be bids going from 95.99, 95.98…95.90. The cheating technique is as follows: Let`s say oil is trading at $96.00, and the bids and asks size on both sides of the ladder are relatively all the same size, let`s say 30 contracts.

Who are the Culprits?

Well, large institutions, Hedge Funds anybody with a large capital base will all the sudden at strategic points when they want to move price in a certain direction, flash a 115 contract size order right beneath the current price in the direction they want to move price. Say 115 contracts now bid at the $95.98 price level.  

Of course, these large flashing orders relative to other orders stand out, and that is the purpose, to stand out in the market! Which in and of itself would not be a problem if these were “legitimate” orders with the actual intent to buy 115 oil contracts at $95.98 per this example. However, even a casual observer can see that these are fake orders!

The Large Fake Orders will disappear before touched

They have no intent on buying with these 115 contracts, as they could just hit the bid or ask with their order. And if they really wanted to buy at a good price they would do so with a hidden order or break up their order so as not to move the market.  

The sole purpose of these flashing large sized orders in relation to all the other price bids and asks at the various levels is to influence price, i.e., scare anybody from selling into their order, and invite others to front run their fake order. In short, to move the market!

Needless to say the same firm who flashes the oversized 115 contracts is already positioned in the direction that they want to influence price to go with these “fake orders”, these are not real orders, and will be pulled the instant someone hits their order. 

Move Price in Firm`s previously positioned Direction 

So the intention is never there to buy or sell these 115 contracts, it is merely for show to “help” move price in a given direction. This is the reason for the huge size relative to all other orders on the price ladder, to scare the market in the direction that the firm is already positioned.  

Strategy Works: That`s why it is consistently used to move markets! 

Moreover, it does work or else the firms wouldn`t continue to use this type of flashing large fake orders strategy. It can also be interpreted by other traders; this serves as a form of open collusion, signaling to the entire market to go this way.  

Maybe the CFTC needs a new leader! 

This is blatant cheating, and it happens right out in the open every single trading day. Where is the CFTC or the government for that matter? All they have to do is monitor the oil markets for a week and they can find hundreds of examples of this cheating technique used to move the markets through artificial means. 

It is about time some of these blatant cheating, and pure market manipulation techniques used in the oil market are identified and cleaned up by the regulatory bodies that have been asleep at the wheel. The abuses that go on every day in the oil markets are a real failure on behalf of the CFTC and the government to properly regulate these markets from price manipulation. It is about time for Washington to investigate why the CFTC fails to properly regulate the oil market. 

 

 

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Tue, 01/29/2013 - 19:48 | 3196844 The Econ Ideal
The Econ Ideal's picture

What we need is more regulation not less? How is that going to solve anything? Banning speculative trading is unrealistic. Gov't (CFTC, SEC, Fed, ...) interventions and regulations have harmed markets. 

Tue, 01/29/2013 - 14:15 | 3195422 Kyu
Kyu's picture

That's only a part of the trade.  As soon as the other traders get a whiff of the large limit order they'll start leaning on that bid.  And as they do they'll hit into the offer while the operator will take the other side of those trades and sell large quantities into this move.  As the operator is usually a size trader, his selling overcomes the move higher and eventually pushes price lower into the previous phantom bid traders were leaning on, the operator removes that large bid and prices sinks through with little support.  The other traders realizing now what's happenedwill puke or get their stops hit and price sinks even further and more aggressively.  All the while the operator is slowly buying back these contracts for a profit as prices tank.

 

These games are played all the time.  If you don't have the size to whether these games or you don't know how to effectively identify these situations, you should not be trading these markets.

Tue, 01/29/2013 - 13:53 | 3195363 silverserfer
silverserfer's picture

woe the life of a speculator. Such a sad tale. i just lit a candle and pour out some of my morning 40.  

Tue, 01/29/2013 - 13:31 | 3195291 lemarche
lemarche's picture

WELCOME TO MODERN "MARKETS"...SAME GOES EVERYWHERE..TODAY HAD A TRY AT DAY TRADING/SCALPING GOLD...BOY IS THAT A MANIPULATED MARKET???... OH YEEEESSSS...

Tue, 01/29/2013 - 13:57 | 3195377 lemarche
lemarche's picture

BY THE WAY THE TECHNIQUE YOU RE DESCRIBING IS PRETTY BASIC... WHAT ABOUT SMASHING THE MARKET IF YOU ARE A PARTICULARLY LARGE PLAYER IN A MARKET (EG GOLD..) AND THEN ONCE IT IS CRUSHED BUYING BACK... EASY MONEY ISNT IT?

Tue, 01/29/2013 - 13:15 | 3195224 Downtoolong
Downtoolong's picture

Same thing as algo quote stuffing that we've seen many examples of here on ZH. But, don't worry. The CFTC is going to get around to dealing with this just as soon as they finish holding their 1,300th hearing on position limits.

 

Tue, 01/29/2013 - 12:40 | 3195132 otto skorzeny
otto skorzeny's picture

this bitch will touch $100 a barrel for WTI by Fri.

Tue, 01/29/2013 - 12:27 | 3195065 falak pema
falak pema's picture

the oil market is the heart of the first world Oligarchy market. Its the Mecca of the three kings of Pax Americana's religion : oil, weapons and reserve currency. Its as if the Euphrates, the Tigris and the Nile all meet at some mythical place. That place is in the Hormuz today.

So greasing its wheels, that treads those holy waters like the fount of humanity, has to be done keeping in mind those who call the shots : the viewpoint of the Oligarchy is what counts; not from the viewpoint of the consumers.  

The three MAgi and the nativity of Oil, saviour of the world. 

All bow to Pax Americana dogma. Humpty Dumpty of financial world.

Tue, 01/29/2013 - 12:12 | 3195015 crito
crito's picture

how the fuck did this stupid piece of text made it to ZH??

Tue, 01/29/2013 - 11:48 | 3194933 Toolshed
Toolshed's picture

All you raging self serving assholes berating the author should get together and fuck each other to death. Please. Just because you pricks don't have any trouble paying for your fuel needs does not mean everyone enjoys that luxury. I am content with my financial position, but I know MANY people who struggle daily. The manipulation doesn't only effect your fucking trading positions. It also effects the prices of innumerable petroleum based and related products (pretty much everything) that great numbers of consumers must part with their very few assets to obtain. I would like to think that you dick suckers simply had not considered this, but alas I know all too well that you fucking turds just don't care because your concern stops with yourselves. Fuck you assholes very hard.

Tue, 01/29/2013 - 16:21 | 3196025 Antifaschistische
Antifaschistische's picture

Thanks ToolShed....I already filled out my complaint.

CFTC Complaint Form

https://forms.cftc.gov/fp/tcform.aspx

Tue, 01/29/2013 - 13:37 | 3195311 BlueCheeseBandit
BlueCheeseBandit's picture

Did you consider that higher prices means less demand means lower prices? Market is self-correcting. All I'm sayin'.

Tue, 01/29/2013 - 13:20 | 3195250 DaveyJones
DaveyJones's picture

Will you run for congress. We need someone who talks like this. at least to the banks

 

Tue, 01/29/2013 - 11:26 | 3194854 Hohum
Hohum's picture

Ok, Mr. EconMatters, let's ban margin purchases of oil.  Then the price will fall.  Then production will fall.  Then the price will rise.  Then you will be an unhappy dude.

Tue, 01/29/2013 - 13:47 | 3195340 CrashisOptimistic
CrashisOptimistic's picture

 

There is essentially no manipulation of the oil market.

This is so because there are a few hundred oil markets, namely, the refinery manager's office.  You have oil to sell, you go to the refinery and agree on the price.  When doing so, you don't even see that day's NYMEX  trading.

NYMEX has little or nothing to do with what refineries pay, and they are the only thing that matters.

Tue, 01/29/2013 - 11:27 | 3194852 Turd Ferguson
Turd Ferguson's picture

Get over it and welcome to the real world! Try trading silver for a while. Maybe your oil experience will come in handy.

Tue, 01/29/2013 - 11:43 | 3194918 johnnymustardseed
johnnymustardseed's picture

Libor, oil, gold, silver,stocks ,wheat, corn, soy beans,bonds, dollar, euro....what else am I missing... the whole fucking thing is rigged

Tue, 01/29/2013 - 13:16 | 3195238 DaveyJones
DaveyJones's picture

It's almost as if criminals are running the place

Tue, 01/29/2013 - 14:31 | 3195519 bugfixx
bugfixx's picture

Almost?

Tue, 01/29/2013 - 12:21 | 3195043 Tango in the Blight
Tango in the Blight's picture

It's easier to list the ones which aren't manipulated. If there are any.

Tue, 01/29/2013 - 12:03 | 3194984 Herkimer Jerkimer
Herkimer Jerkimer's picture

'

'

'

But the 'retail investor' is coming back!

 

•j•

V-V

Tue, 01/29/2013 - 12:30 | 3195079 Lohn Jocke
Lohn Jocke's picture

I keep inviting people to join me in the rice trade. Nobody seems to want in... Hedge funds only fuck with our market once maybe twice a year.

Tue, 01/29/2013 - 10:46 | 3194690 DUNTHAT
DUNTHAT's picture

Check out the extensive deconstruction, analysis, and forecasts of 40 CFTC COT contracts at www.CommitmentsOfTraders.com

Tue, 01/29/2013 - 10:17 | 3194584 BlueCheeseBandit
BlueCheeseBandit's picture

Hasn't the Icahn/Ackman thing showed us that Wall Street isn't homogenous? For every firm manipulating one way, there is another firm with the opposite position trying to drag it the other. It's not perfect, but trying to blame your losses in a grand conspiracy makes you look like a loser.

If you can't stand the heat, find another game.

Tue, 01/29/2013 - 09:57 | 3194529 cleon
cleon's picture

Umm...yeah..did the OP just figure this out??  Surprised it made it here.

Tue, 01/29/2013 - 09:46 | 3194492 TheBird
TheBird's picture

OMFG.. are you a pussy or what? You run screaming under your bed because someone puts a large order in on one side or the other? Well then get some fucking balls and hit their bid or take their offer instead of whining about it. Or if you think you know their game, why not just play along for the ride?

Have to say too many comments/posts on ZH about 'cheating' and 'maniupulation' are really about crybaby traders not having any balls and wanting their daily profits delivered to them.

Tue, 01/29/2013 - 12:45 | 3195150 adr
adr's picture

I prefer to actually earn my money, not have it delivered to me because some casino slot machine just paid out.

Trading is not earning money.

The world would be a far better place without the stock exchange. But the allure of wealth without labor is too great and the fear of prosecution for killing evil people prevents good people from doing anything about it.

Tue, 01/29/2013 - 13:16 | 3195242 TheBird
TheBird's picture

Go back to Russia commrade. The capital markets and traders have their place and serve and important function in the economy. Don't be dissing everyone because of the excesses of Washington regulation or those who then take advantage of DC stupidity and the slide into corporatism.

Tue, 01/29/2013 - 23:52 | 3197692 Hohum
Hohum's picture

Mr. TheBird,

Yes, I guess that important function is to "create wealth."  But really what is the important function?  Traders bidding up stock prices when that leverage could be used to build and develop something.  Bidding on stocks and avoiding the production of value.

Tue, 01/29/2013 - 11:33 | 3194885 rocker
rocker's picture

On DanEric's site I've repeatedly told people to:  1. Do Not Short the Financails.  They are the Banking Cartel afterall.

2. Buy Oil, just Oil, (as a commodity), the Banking Cartel under the FED's endorsement are pimping the price of Oil to try to stop deflation.

This has been the obvious trade. Kind of funny how all other commodities are in the dump including miners, but Oil marches on.

Watch out next week, Space Aliens will invade our Oil fields to pimp them even higher.  Even though the U.S. has enough to supply itself.

Tue, 01/29/2013 - 13:15 | 3195211 DaveyJones
DaveyJones's picture

Oh honey, like honey, good oil hives are getting harder to reach and the worker bees are all screwed up

"supply" is more than volume. It's what it takes to hit your brakes

and oil is not like any other "commodity" It's the heomoglobin of the world 

EROEI

Tue, 01/29/2013 - 14:06 | 3195405 SafelyGraze
SafelyGraze's picture

"It is about time for Washington to investigate why the CFTC fails to properly regulate the oil market."

We have looked into this matter and determined that it falls outside our jurisdiction.

-The Management

Do NOT follow this link or you will be banned from the site!