Did Someone Intentionally Try To Crash The Crude Contract?

Tyler Durden's picture

We have noted the incessant slamdown in the precious metals markets, and highlighted that the only thing that can slow the flood of liquidity into each and every market is a rise in energy prices. The former represents 'trust' in the system; the latter represents 'real economics' as it squeezes the global economy forcing the central banks to pull back or tighten (see China's lack of rev repo recently). To wit, we just noted the plunge in WTI this morning; but Nanex, given their depth of data, noticed something considerably more concerning... "Because the circuit breaker tripped after the market had somewhat stabilized, we think another large sale appeared that would have decimated prices - which CME's circuit breaker logic picked up on, causing the halt." Did someone intentionally try to crash the WTI Crude contract? And if so, who? We don't know, but the usual suspect (singular) does emerge, considering that with gas prices hitting new February daily record every day, and every dollar in increase in WTI means even less (seasonally adjusted) GDP, and less consumer purchasing power, those evil speculators who are taking the Fed's free money to buy commodities (and very unpatriotically not the S&P or Russell 2000) must be promptly punished.

Via Nanex,

On February 20, 2013 at 11:01:36, the April 2013 crude oil futures contract was hit with over 2500 contracts within 2 seconds sending prices sharply lower. Oddly enough, 12 seconds later, all CME oil futures contracts halted for 10 seconds. Because the circuit breaker tripped after the market had somewhat stabilized, we think another large sale appeared that would have decimated prices - which CME's circuit breaker logic picked up on, causing the halt. This large ghost sale must have been canceled before the 10 second halt ended. Another explanation is a software bug in CME's circuit breaker code, which we doubt because they have had great success with their circuit breaker logic.

 

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Jason T's picture

FEd to be hawkish today...don't think they like those rates rising....  

TruthInSunshine's picture

ObaMao rang Gensler and said "f*ckin' Bernanke's 'Virtuous Circle' monetary policies are making gas prices problematic for me again, beeeyotch!"

akarc's picture

China. I watched the cartoon.

Cult_of_Reason's picture

NY Fed was ordered to walk crude down (tries to resuscitate the consumer).

Cognitive Dissonance's picture

That's just crazy talk Tyler. Everyone knows there's no such thing as a conspiracy nor is there manipulation in our 'free' markets.

/sarc

Orly's picture

According to "Bear," a poster over at FXBriefs.com, there is a major commodity hedge fund that is crashing and burning.

Tyler should check it out...

:D

Orly's picture

I tried to find it but it appears the post has been removed from FXBriefs.com.  (That's not cool, by the way...)

My apologies for what may be inaccurate information (or may turn out to be accurate only in retrospect...).

Sorry about that.

-_-

Downtoolong's picture

One squeeze is all it takes these days. At least it's not to the upside this time, or we would be looking at $150 crude and $5 Gas.

Mr Lennon Hendrix's picture

And the biggest moves up all always are preceded by the biggest moves down.

Chart that, bitchez.

EscapeKey's picture

unpossible! according to the VIX - which is in no way manipulated - large sudden moves simply don't happen.

Mrmojorisin515's picture

These markets are so irrational the only thing you can do is laugh.  Its like a dog chasing a car, no reason the dollar drops from 80.5 down to 78 and then back up to 80.6 in a few weeks, the trends don't exist except that everybody knows shit is fucked.  The past few months, since QEwhatever was announced has seen the metals crushed, the market up, the 10 year allowed to lose a bit of value to show some semblance of a real market, and oil staying in a tight range right under 100 bucks.  All utter bullshit, but come on people, we've been reading this site for years and no its all utter bullshit, until its not ;)

Kirk2NCC1701's picture

Takeaway?  In a broken market where everything is manipulated (like former East German company statements), and price discovery becomes a Wheel Of Fortune, only the Big Players dare speculate for a quick buck.  Everyone else:  Head for the fiscal shelter, i.e. stay liquid, maintain personal cash-flow, minimize expenses to bare essentials, and mitigate risk.  'Invest'/Speculate/Gamble at your own risk.

Herdee's picture

Just watch DXH13 - U.S. Dollar Index (ICEFI),if she takes out 80.90 today and breaks through resistance at that level,your going to see commodities take another hit.Ya,there's a giant glut of crude on the market with Canada,Libya,Russia(now the worlds biggest producer) and especially IRAQ pumping to beat hell,all at a time when the U.S. has now become self-sufficient.I'll see $50 dollar oil in the next two years or less.The world economy is in a tailspin and going knowhere but down.

ekm's picture

Absolutely correct

nope-1004's picture

If it takes out 80.90, it will be promptly brought back into "line".  A rising dollar is not what the govvy wants.

 

TruthInSunshine's picture

Only the insider flies on the wall know, but think about potential coordinated "saving" of countries like Japan, who have a debt-to-GDP trajectory that brings them closer to collapse than other G7 or G20 nations (also, UK).

It's like another Plaza Accord, or Bretton Woods, or Nixon-shock, just in a different form and for different reasons this time.

"Oh, okay, we'll allow it..." goes the meeting, but you'd never know it by reading the official joint communique.

Just a thought.

Dr. Engali's picture

Good luck with shale oil at that price. If oil drops belw $80 shale oil is dead.

Mr Lennon Hendrix's picture

The oil is getting more and more expensive to produce.  This will mean the price will stay high, or cut into GDP.  Maybe oil comes down but equity would crah.  If that happens you think moves will be into fiat?  Lol.  Whatever.  We will see who is right soon enough.

Ident 7777 economy's picture

No.

 

You're looking at 'synthetic' valuations and NOT real costs ...

Teamtc321's picture

Tell that to the service provider's in the sector with blown out input cost since 08'. Margin compression has been utterly fucking horrific within the sector.

Ident 7777 economy's picture

1) Sounds like the differentiiating factor is relative COST of one producer vs another. 

2) Explain how service providers fit into the ovrall picture; sounds as if he/they did not have costs under control, since *someone* is still producing, refining, selling product and making record profits ...

 

ekm's picture

It is simply one of the warnings from the gov that crude oil will be crushed to as low as $15 temporarily.......VERY VERY SOON.

EscapeKey's picture

yeah good luck getting any supply from athabasca - or any other region where oil doesn't flow freely out of the ground - at that price.

ekm's picture

 I said.....TEMPORARILY

Mr Lennon Hendrix's picture

And the DXY goes to 150.  Lol, sure, because the dollar is backed by winged unicorns and talking teacups.

fonzannoon's picture

Does Saudi Arabia own any tresuries? Because $15 is war on them and they will dump them.

ekm's picture

They have already pre-sold their quota at $110 brent.

They want a crash.

fonzannoon's picture

why do they want a crash? Are they not making profits at higher prices?

ekm's picture

Not at all.

Profit is made when the product is sold.

At brent $120 they'd be stuck. Nobody can afford it as far as real economy is concerned.

fonzannoon's picture

I see above you said Temporarily.....what happens after temporarily?

ekm's picture

Same cycle.

It goes back up to 120 after opec does REAL CUTS.

 

Opec is infamous for never cutting, regardless of how much the media says they are. Who's gonna cut? Venezuela?

Mr Lennon Hendrix's picture

ekm, you are the king of all rumors.  I'd like you to post some data for a change to go with your hairbrained theorys.

ekm's picture

If one follows data from the media, that one is screwed (in general, do not take this personally)

Mr Lennon Hendrix's picture

I couldn't agree more, which is why when I hear about all the "oil coming out of the ears" of Russia, and America, and the ME, I like to remember that oil is a finite good and the House of Saud lies about their reserves.  I like to remember that the energy returned on the energy invested is all that matters.  So goodbye tar sands!  Good bye fracking!  Light sweet crude is still the only King, and, if you haven't noticed, it is getting so hard to produce that there are wars that are being fought over it by the US MIC under cover of the Blue, Democratic, and Liberal Obama WH.

Ident 7777 economy's picture

Define: "A finite good"

 

Time period, in your lifetime? No ...

MSimon's picture

EROEI is nonsense. If it costs nothing (or next to nothing) for the energy used it doesn't count.

DeadFred's picture

The Saudis would love a temporary drop to $15. They are best able to weather some weeks at that price while all their competition goes belly up.

ekm's picture

bingo

Particularly if the competition is called IRAN.

hannah's picture

first thing i thought when i saw wti down...the gov tried to push prices down. pres hussein cant have $140barrel oil this summer.

SDShack's picture

Yep, the economy couldn't support $140 oil in 2008 with 5% unemployment. It sure as hell can't support it now with 8% unemployment (actually 11%). But with all the govt debt and every country racing to devalue their currency, the commodity inflation spike is guaranteed. Something has to give.

The Heart's picture

"But with all the govt debt and every country racing to devalue their currency, the commodity inflation spike is guaranteed"

Jim Rickards: Currency War 3 Has Just Begun.:

http://www.financialsense.com/node/10533

TruthInSunshine's picture

I'm fairly confident that rate of unemployment using a more honest measurement is at minimum (but still probably quite "under-capturing/reporting" measurement-- like U3 in the 1980s) is 14%.

I genuinely wouldn't be surprised if it's nipping at the heels of 20% in factual (not household survey OR payroll fiction) based reality.

 

Not Too Important's picture

$140 bbl?

What makes you think he cares? The election's over. Let the raping begin.

tecno242's picture

I'd just like to repeat that a long term gold chart looks like gold could crash to 1100 in a hurry if 1500 is taken out.

i'm curious though why the change in sentiment and potentially ugly charts w/ QE4EVA still going on

Mr Lennon Hendrix's picture

Do you only chart gold, or do you also study the fundamentals of the finance system.  Because with talk like "Gold to 1100" I believe fundamentally you have no idea what you are talking about.

Gold is used as a reserve on the balance sheet of all banks, Central and Commercial.  With stocks elevated that means the books are balanced, as equity is an asset to prop up massive liabilities, but as Tyler has been pointing out, equity is over bought here.

So unless equity keeps rising, and good luck with that, something on the left side of the books will need to equal the liabilities.  Gold will be the rock in the books that does that, and that is why Central Banks have been loading up for the last few years.