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LIBOR-gate Comes To Crude: Total Exposes Price Fixing In The Energy Market
While the recent revelations of multi-year LIBOR manipulation (but, but how was that possible: it involved thousands of people, operating for years, manipulating numbers - all the traditional reasons presented against conspiracy theory crackpots alleging that manipulation may be going on here, or there, or at the BLS, or somewhere), which we had said had been happening for the past 3 years, confirmed that the entire rate-based derivative market was a giant scam, at least one market spared from cartel whistleblower, i.e., insider, humiliation, was the commodities market. No longer. As the FT first reported, a Swiss trading office of Total Oil Trading sent a response letter to IOSCO (the International Organization of Securities Commissions), alleging that the same kinds of market "pricing" shennanigans that have been now exposed to have taken place over bottles of Bollinger, may have been pervasive in the crude market as well.
From the letter which may have set off the same avalanche in the energy markets as the Barclays "settlement" did for rates:
TOTAL is a subscriber to the major PRA services for the energy markets (oil, gas, coal, power, CO2, and biofuels). The work done by the PRAs can generally be considered conscientious and professional. However, the published prices do not always represent those of the market with the same degree of accuracy. This heterogeneity exists both within individual PRAs and between PRAs. As well, the quality of the reporting is not always consistent over time. Finally, while certain PRAs have pricing processes that are reproducible using the underlying data, others do not (the principal difference being the use of “judgement” that may bias prices away rather than toward the market).
Barclays (only one bank for now, soon many others) already showed us in all too criminal (yet neither admitting nor denying guilt) terms what "judgment" means in the context of conflict of "interest rate" price setting. It means precisely the same in the energy market.
And while it was the BBA in the role of ringleader for the Libor scandal, it appears when it comes to commodity price fixing, the entity behind the scenes is Platts:
Very approximately, for all transactions linked to PRA prices, Platts represent 90% to 95% of transactions on crude 85% to 90% of transactions on products, and 85% to 90% of OTC derivative transactions. The remaining share is covered by Argus and other PRAs which are present in niche markets.
Traders, buyers, and marketers depend upon the PRA prices as a source of market references for on-going transactions. Oil market players contribute to the price assessment process by reporting their deals (ensuring the assessed prices take them into account). This interdependence between the PRAs and the oil market players defines the price discovery process.
Platts (the dominant price reporting agency) imposes a methodology that does not furnish a market price (based on the day’s prices) but rather a price to the market.
Sometimes the criteria imposed by PRAs do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer. The difference in methodologies between Platts and Argus is the greater integration of the shape of the forward price curve by Platts than by Argus (or ICIS or APPI, etc). Accordingly, when the market is in strong backwardation, Platts spot prices are lower than the rest and in contango they are higher.
Inaccurate pricing is not simply an issue regarding the pricing of OTC contracts. Margins for refiners and retailers as well as prices for end-users are directly impacted by erroneous prices.
The conclusion:
Where these margins are particularly narrow (such as in Europe) the volatility and uncertainty in PRA pricing methodologies can be very detrimental to the financial health of the companies concerned.
We doubt we need to get into the nuances of what happens when a cartel marks prices to a central distribution warehouse instead of market (we have done that already for the CDS market and for LIBOR), and what happens when surreality can no longer be sustained and all these market trading vehciles have to reprice to fair market values. Can one spell margin call driven liquidations?
And there you have it: while the commodity cartel had managed to keep quiet in the golden years, when everyone was making money, now that it is time to cull the competition, one by one the cartel members are stepping up and breaching the fundamental rule of the prisoner's dillemma: don't defect.
And just like in the Libor scandal one defection was enough to destroy the entire Libor-based market, so Total likely set the precedent for everyone else to follow suit and expose their competitors for unfair and potentially illlegal practices. Because if they don't do it first, the risk is someone else will do it to them. Finally, remember that in the new normal, a banker is a lawyer's biggest... enemy.
This is the FT's assessment as well, which unsurprisingly exposes the same key cities as have dominated the LIBOR scandal:
The unusually candid public comments by the trading arm of Total have broken the omertà of the energy physical trading industry, a close-knit community in London, Geneva, Singapore and Houston where disputes are usually settled in private.
And for those curious just who the commodity "cartel" consists of, here are some names that would prefer Total never existed (all of which provided response letters to IOSCO praising the pricing mechanism... of course):
- ISDA
- CME
- ICE
- Saudi Aramco
- BP
- ARGUS
- API
- GFMA
- IBGE
- CEAG
- IATA
- ICIS
- LEBA
- Platts
Or, in other words, the entire energy market status quo.
Full Total letter (pdf)
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the White House response to this is, again...
YouTube - Obama on Romney in 7 Seconds {same, same}
German citizens selling their gold to get their basic needs:
http://www.thelocal.de/society/20121009-45439.html
DUI, Kraut style:
http://www.thelocal.de/society/20121009-45447.html
Ahmeexnal
You mean family heirloom Gold Jew teeth right?
I thought you can't eat gold.
Repeating a quote 5 minutes apart is bad enough but up arrowing yourself first is despicable...
Duke of Con Dao
Dude, the killer is Obama already blamed energy prices on speculators manipulating the market.
That means a lot of heads will explode here because Barry called one right.
Who gives a shit what the US sock puppet show does...something fairly important that effects everyone on the planet is happening. Go post it on twitter or something.
Would this mean that anyone that's filled up their gas tank get to launch a class action suit to the companies and any prior equity holders of the list of energy companies on the list?
Which is all of them and by proxy any equity or bond holder that profited from the scam? Including sovereign governments?
If true...then we could all sue back the country.
Oh shit... When this got exposed with LIBOR, the next thing you know people were getting killed in a movie theatre in Colorado...
Well, Monsanto was accused of price fixing years back and that sure held back their abitions now didn't it?
Price fixing is inevitable in a pure fiat system. It is necessity because capital misallocates by nature of the system, creating imbalances that need plugging and fixing.
Meanwhile, actual workers never get to experience the full value of their labor.
Fiat, it's what fucks you.
I need that as a bumpersticker.
So were prices fixed up or down?
It looks like both...
ParkAveFlasher
What the fuck kind of blather is that!
Pricefixing will exist anytime two or more people enter into a conspiracy to profit from others.
It's human nature to cheat for an advantage.
It's most likely animal nature to cheat for an advantage and hard wired very deeply in the brain.
Gully Foyle aka Funk Master BoldCaps, I don't entirely disagree with you about human nature but you are a hair trigger bold-facer.
In a fiat system, there is an infinite maze of fixes that are unavoidable even among honest people in transaction. You can not help but to lie or at least traffic in some falsehood.
edit: In a fiat system, the denomination itself has sinking value, because the very existence of interest rates in a fiat system require more units of currency issued into the economy. Thus, all dollars are shrinky-dinks in an inflationary oven. It's a promise, it's a debt instrument.
In a gold system, you are reducing to a single, universal fix, thus creating a single comparison that reflects the true or false basis of any single transaction. There are no overhanging promises of value returned in the transaction, you simply transact. You reduce the human variables sourced by the currency issuer. You don't reduce all human variables, but a great deal of the most insidious and nefarious of them.
Gold standards do not remove theivery and advantage-taking. Gold standards promote profit pursuit - in the marketplace first. Convertibility itself - the most extreme form of gold standard - greatly reduces the power of the currency issuer to fix prices via infinite issuance of currency.
francis_sawyer
Goddamn that overpriced movie popcorn!
More like the NFL, or new season of DWTS hadn't started when the LIBOR story broke...
"market "pricing" shennanigans ... may have been pervasive in the crude market as well. "
uhm, geez, I'm shocked.
*yawn...
Wake me when you find an honest segment of the world market economy.
oo oo i got one!
your local weed dealer
an honest criminal , so long as the weed is indeed weed
Bravo. A true example of where reputation and lack of regulation breed quality business values.
You conspiracy loon doomers are missing out on the real stuff happening out there in the real world.
You guys need to get a life and this vest!
http://tech.uk.msn.com/features/like-a-hug-facebook-vest-gives-you-a-hug
next we're gonna find out that metals are manipulated...cough
Xibalba
If metals aren't manipulated you can't be a Blacksmith.
No one will expose the price fixing in the gold and silver market. The CFTC has been looking at silver trading for over 4 years now and has found nothing wrong so far to disclose. They will look for a decade and find nothing. It is heartening to know there is no fraud or corruption in gold and silver markets - just every other market is corrupt.
Does anyone really believe that the true Saudi oil production looks much different than this?
Which is why it is odd for me to see the price of unleaded locked-in at $2.49 for the last three months in my home town.
Brace for after the Red Team Versus Blue Team Intrasquad Selections.
"Does anyone really believe that the true Saudi oil production looks much different than this?"
But....but......but.....it's Saudi Arabia.
<Never mind. I can't do this with a straight face.>
http://www.youtube.com/watch?v=Vpl1thmTJwE
The productivity of a gas well is even worse.
We can only hope cuz that ain't true of US production...
$2.49 or $4.29 ?????????
$3.49
on days like today, i am once again vindicated
conspiracies are being proven true so fast and furious(pun intended) these days, i challenge you to come up with something that ISN'T a damn conspiracy
Congratulations...Now can you finish shining my shoes?
This is actual oil trading, not paper oil trading. It has always been a BLACK ART.
its also historically been private and confidential business. Which is why you need a price discovery platform like Platts. I think this sounds like someone at Total got burned on a settle and they decided to be very French about it.
Nah, I just don't believe it. Oil prices manipulated! These conspiracy theorists will be claiming that gold and silver price is manipulated next!! And THAT is fully regulated and everything by those observant and vigilant regulators...........err somewhere I guess.
have to hand it to them - they have keep the plates spinning a lot longer than I could have imagined... we live in a world of make believe - nothing is priced as it should be and there is no risk of failure ever, from Greece to GM, nothing will ever fail again, no one will ever default on a loan again, debt is meaningless - trillions of digitial currency can be created out of thin air without anything going up in price - I am beginning to believe that in fact the world can live on inflated fiat money for another few decades or forever without the market ever becoming real again...
Man has finally figured out how to finally defeat the free market and manage all aspects of human commerce - what an amazing thing to witness -
hampsterwheel
Dude it's all numbers on a server.
Ever notice how shit was running smoothly everywhere BEFORE BIGMONEY became involved with directing worldwide governments?
The problem real world people think all this shit is like their check book, where bossman hands some dinero which you are required to divvy up back to corporate world.
In bank world those numbers mean shit cause they are nothing more than video game numbers.
You are a link in the viscious cricle of corporate world.
They are the ones spinning that circle.
There is only one Government on the face of the earth that can afford nuclear power right now...
Last news that came out about it a few years ago... JPMorgan was responsible for 90% of the oil price manipulation when it spiked in 2008 and if I remember correctly, it was even on BLOOMBERG of all places...
To be expected. "Say hello to your London Whale" Jamie Dimon.
Anyone who thinks anything in the energy sector is a bad buy need to lay of the Kool-aid. World energy consumption will steadily grow especialy considering large area of so called "undeveloped world" remain at this point.
Except for the global recession and the likelihood of human depopulation therefrom and the largest reserve discovery, larger than that of Saudi Arabia, in the South China Sea and the tech to convert shale oil now available and the decrease in the price of renewables that currently allow Germany to produce a quarter of its peak energy demands on a cool winter day in the upper latitudes of the northern hemisphere you most simple minded one.
Samoe Ol Mother Fuckers'
Platts is part of the same organization as S&P. What did you expect from a company that rates subprime mortgages as triple AAA.
A house in the suburbs can not hold its value over the life of a mortgage if gasoline is $10/gallon. By insuring oil pricing, this is how they were able to rate mortgages highly. It's a self-fulfilling prophecy.
In a fiat system, when you fix any single price, you introduce a cascade of distortions. To fix any single price is to distort all prices.
If I can sell ethanol or biodiesel for a dollar a gallon...PROBLEM SOLVED.
STAY long chemical companies...if you haven't bought yet...I'd say buy.
Your premise is shaky. You would have to grow 10 times more corn in order to replace the market, even more than that because ethanol does not return the same energy per volume unit as gasoline does. By committing corn supply to ethanol production you are impacting the food markets. US Corn is what, 40% of the world market? THat's a lot of Crispix you are taking off the shelves.
The CFTC is the government - why would they expose themselves - GS, JPM, BofA and Citi are the government - simple front men for the system. Occupy wall street is 1/2 right in targeting the banks - but they aren't taking it to the next level - the banks are the government and the government is the banks - destroy GS and it simply opens under another name - by blaming just wall street and the banks is to set yourself up for believing the Government when the system collapses into believing that Captialism all along was evil and was the root of all this misery, and the government will see to it that that doesn't happen again ...then the conquest will be complete...
We occupy a wicked period of human history - or maybe it has always been so, but at least 150 years ago you could get in your wagon and go somewhere without cameras...and people asking you how you came to have so much money on your person...
Just one step closer to the big reset...hopefully concurrent with torches and pitchforks storming DC.
Price fixing over a bottle of Bollinger? There are whores and then there are CHEAP whores....
this isnt a 'scam'...this is how the price of paper oil is decided. same for all commodities.
Really? Same for gold as well?
what price would gold have if it wasnt traded as 'paper'...? if a com trader had to take delivery, what would be the price of the commodity...?
You mean OPEC is real...oh my ....I never knew
No...for once your wrong. The USA is a MASSIVE oil producer. We are as well the world's foremost TECHNOLOGY power. That market has already been shown to be worth TRILLIONS. The same cannot be said of oil. All I need to do is some relatively simple math...if that even...to show that "price" cannot be fixed in this market. Especially in a market where "demand destruction" is the operative business mantra. In other words "so what if you succeed in driving down gasoline usage to 1996 levels...that's just more demand waiting for the multitude of already existing alternatives." And if the railroad industry decided they've had enough of the bullshit....
More useless drivel. Stop overthinking this and recognize that there is plenty of demand for energy with over 7 billion humans on the planet.
Stupid fucking sheep.
How many of those billions still wipe thier ass with leaves ?
Not enough to make one bit of difference. Don't be such a pussy and hate the players, go be a man and change the fucking game.
and as long as we are ranting - I love it when people post how they are going to fight this machine - take it to the streets - or say things like "if they ever cross that line - that means war for me" yeah right - whatever, wake me up when that happens - I know this because I get on a plane four - six times a month - and I stand in long lines where people are told to walk into an x-ray machine so a government agency can view their naked body - almost all the people comply - they raise their hands even in that box in the universal sign of "I surrender" - I opt out everytime, I've been patted down over 30 times - even taken into a small room once - and I look around and I am the only one being patted down.... so I ask you - where are these "people" that will rise up, where are these " the time to rise up was 3 years ago - maybe even 10 - ...no my friend - there is not going to be any rising up of the masses (unless it is a flash mob to steal and destroy) America won't have an "Arab Spring" just go to the airport and watch your fellow Americans stand in submission - and ask them why they are doing it --- you know what you will hear..."it makes me safer"...."its just a small inconvience to suspend my 1st, 4th and 10th amendment rights - I don't mind" ... yeah this is your nation - get used to it - acceptance is the last stage of getting over grief - I'm way past denial, anger and compromise -
Hampster, I always opt out myself and you are right there aren't many of us! "But", it only took 5% to defeat this British!
Tuco
Due to a tragic boating accident, my penis shaped like a .45.
I love going through the security screens - I get taken to a small room and fondled everytime I fly.
the hampster tells us we are shit but he doesnt tell us his position. sounds like you are one of the tsa's bitches since you put up with everything. your past denial, anger and compromise...so where are you now...?
tell us what your plan is or shut the fuck up.
My plan - is to follow the footsteps of the founders of this nation - and that is when they looked around and said this place is tyrannical - they voted with their feet and left - that's my plan, I have a few years to button up and hopefully the plan of the puppet masters to is to keep this wreck afloat for a few more years - Iceland is a good start, they love and understand freedom more than Americas do (per capita) so my home is where my fellow humans believe in freedom and strive to live under it - funny how times change - now people that leave tyranny (the US) are considered traitors and sent off with a nice FU and good riddence --- rather than ask why and get concerned about this nation - they circle the wagons and being Baaa'ing the like sheep that 85% of americans are.... I'm out...
If there is any hope, it must lie in the Proles. Look at the demographics for air travel . . . you don't become (or remain) a cravenly valued member of the top 20% by bucking the system. We all know this.
Unfortunately, the Proles won't rebel until their own profoundly more basic needs are unmet.
That includes Governors you forgot to add.
The number of air travelers has been flat for almost 10 years.[1] Looks like the non-sheep are not even showing up to be harrassed - fancy that. I know I will not fly ever again after some asswad decided my terrified two year olds arm cast needed to be swabed for bomb material. Real eye opener for me personally. Fuck flying and the security theater that it rode in on. The next time I step on a plane will either be because I'm moving to another country or I'm being hearded to FEMA camp 12.
[1] http://www.bts.gov
The conspiracy is the only think holding the price of oil down.
Standing opposed to propaganda is a conspiracy theory....absolutely.
I AM SHOCKED!!!!!!!!!!!
OUTRAGED!!!!!!!!!!!!!!
and todays price action in crude is a perfect example......
When are all the rascals gonna pull up their britches and skid dawdle outta town?
Can't arrest Oil Barrons either. But the good news is that all the vermin Globalists that have the power craze equivalent of Hillary Clinton in their eyes and the turn your brother in for a buck weasly greed of Steve Leisman will soon be nesting their satanic headquarters together in the City of London which will be easily targeted by any suffering nation or rival corporations on the planet and above.
The divergence between the daily quotes published by Platt's and the real market is not very comparable to Libor. The main issue is that Platt's uses their own MOC method to assess the market for many products. MOC = Market on close, a short trading window where everyone is free to bid and offer. That concept can still be defended. The quote however, is based upon "editorial judgement" from Platts, te reporting agency. And some of the editors manage to quote numbers far away from the trades in the MOC because their give weight to BS arguments, like contango into Nov, or supposed bids and offers outside the MOC. So, it's the reporters screwing up.
Exactly. Platts need some sort of discretionary input in the pricing. If one lot traded in the last minute of the day (and was accurately reported) at +15 over NYMEX for instance, but 10 minutes earlier 1000 lots traded at +5, does that mean the market is +15 over NYMEX? Or should Platts be able to make the decision that the minor trade is less representitve of the market than the larger trade?
It seems to me that the market could be much more manipulative if Platts didnt have some sort of editorial input.
Total is not incorrect in what they say, but that doesnt mean that the system is wrong.
Oil is the energy market? HAHAHAHABAHA! They're a bunch of puny cocktards next to the power generators. And those prices are already fixed by State Goverments...at least in the USA. Sure...a bunch of clowns might be going to prison here...but they're definitely going to Economic Hell as well...you're talking about taking it to the largest energy market in human history. And you think the price gouging goes unnoticed? Hahahahabwaha! Ridiculous. Prepare to be mounted by a mule pluckers!
Wait, a small group of extremely powerful people who control the most important commodity on earth is controlling the pricing of said commodity? No way.
Next thing you'll say they are controlling our perceptions concerning said commodity and any potential substitutes. And that part of that control is a distortion of our political, educational and scientific institutions. That can't happen. Not in America anyway.
Haha, when thieves fall out; the sign of Oligarchy inside squabbles, of their cake baking and splitting on private, is now going sour. As we all know the trading arms of these multinationals are based in tax havens and generate most of the juice in their corporate cake.
If the private cartel market splits and favours some more than others it will be a major source of :
" you're taking skin off my nose" in Oligarchy land!
If the OIL lobby loses IT, their legendary cohesion of over 80 more years, this spells bad news in Blackrock town; as things are now getting tuff in the meltdown and resultant slowdown.
The smaller guys, like Total in this shark pool, are feeling the heat. This is because finding new fields is getting more difficult, the small size favours smaller, faster outfits. More and more gas is being found that requires higher invesment in infrastructure and in far away lands difficult to control as MIC loses its big stick in diverse, increasingly hostile regions.
Also the local NATIONAL companies control more and more of the cake at the expense of the traditional transnational majors.
Are we seeing the end of the multinational oil age just five years after the demise of Big Automobile in Detroit?
Tipping times indeed!
you could tell even at 5 am today with the crude price movements it was known and determined that crude would price as it has today.
Yawn.....
More shouting squirell!
I wonder whether some artificially intelligent computer will ever figure out WHY some of the most important articles seem to trigger the most silly and stupid comments in response? Meanwhile - all the traditional reasons presented against conspiracy theory crackpots alleging that manipulation may be going on here ... Perhaps it is the sheer magnitude of the psychic shock of attempting to understand?