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CEO Of Rosneft Compares Oil Market Manipulation Which "Doesn't Reflect Reality" To Gold Price Rigging
It was a little under two years ago when, when oil and gas prices were both surging, Obama decided to punish the evil speculators whose fault the rise of oil was when he announced he would "give the Commodity Futures Trading Commission authority to increase the amount of money that a trader must put up to back a trading position. The administration officials said such authority could help limit disruptions in energy markets." Needless to say, Obama did not punish the world's central banks for flooding the globe with excess liquidity, which by definition would end up in less than "productive" ventures such as barrels of oil.
Over the weekend, it was the opposite, when instead of blaming speculators for soaring prices, none other than the CEO of Russia's largest publicly-traded oil company, Rosneft, in not so many words, accused speculators of sending the price of oil plunging. Which is actually a narrow read of what he said, and one we don't agree with.
What we most certainly do agree with, is his broader message, namely that financial speculation has made a mockery of physical supply and demand and "distorted oil markets, prices do not reflect reality. They are driven instead by financial speculation, which outweighs the real-life factors of supply and demand. Financial markets tend to produce economic bubbles, and those bubbles tend to burst. Remember the dotcom bust and the subprime mortgage crisis? Furthermore, they are prone to manipulation. We have not forgotten the rigging of the Libor interest rate benchmark and the gold price."
Yes indeed, the CEO of an oil major just used gold rigging as an example of the same commodity manipulation that gold longs have been complaining about for years if not decades.
Here is Igor Sechin full Op-Ed in the FT
Oil markets need reform to reflect reality for producers and consumers
The oil crisis of today is often compared with the great oil glut of the 1980s. But demand and supply is no more unbalanced now than it was on average throughout the past decade when the price was much higher. Compared with the flood of oil that hit the markets in 1985, new supplies arriving today are ripples on the water. The world is thirsty for oil. Leading analysts see demand increasing 10 per cent between now and 2020.
Yet across the world, oil executives are watching the price of crude fall — and they are responding by dramatically scaling back their investment plans. Analysts Wood Mackenzie estimate that investment in the sector will fall by more than $100bn in 2015. Oilfield services companies have cut tens of thousands jobs over the past year, pointing to a steep reduction of demand for their services. Supply will contract, restoring balance within a year.
In 1985, investing in a new well was worthwhile if the oil it produced would fetch between $20 and $30 a barrel. Now, more oil comes from wells that are tricky and expensive to build; the break-even price is closer to $60 or $100.
Look at the market fundamentals and it seems prices should soon rebound to the $60 or $80 a barrel levels that would make it worth building the wells that the world needs. But if markets are distorted, and the rebound takes longer than it should, many current production projects will be mothballed — and the price will eventually climb to $90 to $110 a barrel, or higher.
In today’s distorted oil markets, prices do not reflect reality. They are driven instead by financial speculation, which outweighs the real-life factors of supply and demand. Financial markets tend to produce economic bubbles, and those bubbles tend to burst. Remember the dotcom bust and the subprime mortgage crisis? Furthermore, they are prone to manipulation. We have not forgotten the rigging of the Libor interest rate benchmark and the gold price.
The answer might seem to lie in more regulation. In fact, regulation is already excessive and makes things worse. The US has banned the export of oil for more than four decades, giving American oil refineries an unfair advantage over their European peers. The excise regime in the EU, which imposes levies on petroleum-based products, distorts oil consumption markets. Sanctions against Iran affect oil supplies and trade balances.
In the long term, sanctions against Russia endanger Europe’s security of supply. The fact that oil is taxed differently in different places further distorts the terms of trade and explains why oil markets in Europe and the US have been structured differently.
Financial bubbles, market manipulations, excessive regulation, regional disparities — so grotesque are these distortions that you might question whether there is any such thing as an oil “market” at all. There is the semblance of a market: buyers and sellers and prices. But they are performing a charade.
What is to be done? First, financial players should no longer be allowed to have such a big influence on the price of oil. In the US, Senators Carl Levin and John McCain have called for steps to prevent price manipulation, though whether they will be implemented, and when, remains an open question.
In any case, the authorities should go further, ensuring that at least 10 or 15 per cent of oil trades involve actually delivering some physical oil. At present almost all “oil trades” are conducted by financial traders, who exchange nothing but electronic tokens or pieces of paper.
We also need international action to make exchanges more transparent and to prevent price manipulation, similar to the measures taken against the Libor manipulators.
Sharing market information, such as production and consumption volumes, prices and contract conditions, would make it harder for price distortions to persist. We should make sure analysts at investment banks do not have hidden conflicts of interest.
A true market for oil, where prices reflect demand and supply, is in the interest of producers and consumers alike. They should work to create one.
* * *
Welcome to the club, pal, and condolences you have to sell a physical commodity at paper rigged prices. Of course, for those of us who are happy to purchase physical commodities at manipulated, artificially low prices all the above is well-known, but perfectly welcome, especially since every direct and indirect market manipulation always comes to a disastrous end.
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"What's a trillion between friends?" - Bernank
It's a big club and you ain't in it BITCHEZ
But my Papa used to take me to the Saturday Night wrestling matches, and he told me they were all "real".
Both markets are measured in hollow grams
lol...
http://www.rosneft.com/Investors/structure/share_capital/
...somebody call a wambulance.
Finally a story about oil prices that makes sense!
Many recent oil articles here on ZH have been full of shit!
the game is always rigged, better in our favor than the other guy. raise your hand if you want higher gas prices.
"he game is always rigged, better in our favor than the other guy. raise your hand if you want higher gas prices. "
Is there any chicken in this shit?
Tastes like 100% strawman...
So, we have at least two (so far) hardcore crony-socialists in our midst.
Splain yourselves...is or is not OJSC ROSNEFTEGAZ 100% federally owned and the largest "shareholder", making the rest window dressing at best?
1 – OJSC ROSNEFTEGAZ is in 100% federal ownership. The Russian Government’s direct share (through the Federal Agency for State Property Management) in Rosneft’s equity is 0.000000009%.
http://www.rosneft.com/Investors/structure/share_capital/
Well? ;-)
Well what ?
In a world where the only entity that can print dollars is the treserve, everyone else is a private for profit entity by default.
You saying the oligarchs at Rosneft are converting their rubles to another currency? Why, that almost sounds unpatriotic Spitzer.
Perhaps St.Pooty will come riding in on his white horse and save the day!...lol.
http://www.themoscowtimes.com/business/article/russia-s-rosneft-publishes-executive-pay-but-hides-sechin-s-salary/516014.html
///////
Damn you nmewn, stop pointing out the rampant world wide crony-socialism and large criminal gangs and enterprises (called governments & their laws) wherever you find them! Our very lives depend on them!!!
Fucking serfs ;-)
Take a look at the obvious, I think 3 things are the case here.
1) Crude / energy is nearing a bottom here => http://bit.ly/1fMcakI
2) you can smell the absolute BS, and manipulation about teh GREECE Crisis, and that finishes, at a time market bottoms start, cycle wise. Funny how that is in sync timing wise. Hmmmm.
3) They will make the GREECE crisis seem bad, and send the market down a BIT so that Smart money who missed this nice rally in FEBRUARY can get back in and Make Big money in the coming months.
Time will tell.
Another conjob, and many traders are going broke, thinking this market is going to crash soon.
Just wait till you see what LOW CRUDE oil does to this market, when it hits the news headlines, and the profit reports coming. Bears will get CREAMED!
Tough shit Igor and Vlad. This is big boy football. Don't like it? Get your asses out of the Ukraine while your populace still thinks they like you.
Too bad oil is rallying now as the frackers give up. Me? I hope oil goes lower and the ruble keeps getting pounded and the Russians finally have enough of Vlad's horseshit and string him up by the balls.
Do you miss Yeltsin, and his giveaways of the Russian commons to dual-nationals with international banking connections?
"Get your asses out of the Ukraine..."
Doubtless you can provide copious evidence of this...Poroshenko must have plenty given that he's alleged Russian invasions at least 15 times but so far produced none.
Whilst it is reasonable for us in the West to assume that some Russian support is being provided to the separatists in East Uke, there is also Western support being provided to Poroshenko's fascists which some people choose to turn a blind eye to. English-speaking American boots are in East Uke as witnessed by several vid interviews.
Whereas Russia can justify its support to protect its national security, the West cannot.
From Global Research ... and other suorces... Ukraine’s top general is contradicting allegations by the Obama Administration and by his own Ukrainian Government, by saying that no Russian troops are fighting against the Ukrainian Government’s forces in the formerly Ukrainian, but now separatist, area, where the Ukrainian civil war is being waged.
The Chief of Staff of Ukraine’s Armed Forces, General Viktor Muzhenko, is saying, in that news-report, which is dated on Thursday January 29th, that the only Russian citizens who are fighting in the contested region, are residents in that region, or of Ukraine, and also some Russian citizens (and this does not deny that perhaps some of other countries’ citizens are fighting there, inasmuch as American mercenaries have already been noted to have been…
And then they came for my market.
Sniff, sniff.
"First, financial players should no longer be allowed to have such a big influence on the price of oil."
That's what you call a non-starter idea right there.
So, QE juiced the oil futures, lack of QE caused them to collapse.
Will Euro QE allow them to rejuice? Time will tell.
This shit has NOTHING to do with real supply and demand.
"In 1985, investing in a new well was worthwhile if the oil it produced would fetch between $20 and $30 a barrel. Now, more oil comes from wells that are tricky and expensive to build; the break-even price is closer to $60 or $100. "
300% inflation -a 3-fold change in the credit/moneyness supply- will do that to any and all prices which are not being depressed by corresponding productivity gains of magnitude.
Have a look at the change in global debt levels public and private from 1985 to 2015, just 30 years, and you will clearly see the MORE than treble expansion of the credit/moneyness outstanding!
IMHO, scarcity of Oil is NOT the problem, the outrageous inflations of the supply of credit/moneyness, and the speculative uses of these inflationary credit/moneyness emissions ARE the problem.
Exactly. And most of the oil commentary on ZH has not been intellectually honest nor ackowledged. this... Oil is absoutely more scarce all the time compared to essentially fraudulent unchecked fractional reserve banking financial assets and CB printed money... Comparisons with the mid 80s are stupid. Saudi Arabia had millions BPD in standby excess capacity....
Economics is about the allocation of scarce resources. Oil is amongst the most scarce of the absolutely essential goods (try living a modern life without it...). See Maslow's Hierarchy...
If oil never went above $50 a barrel because of the mass speculation by TBTF banks, a price of $45 per barrel would have opened the floodgates to new exploration.
However, because oil went north of $100 all of a sudden projects planned in the early 2000s that were seen as profitable with oil at $30 now are impossible to break even without oil above $60. I call bullshit.
Or does nobody remember pre 2005 anymore?
I'd be happy with $65 oil and the gas price of $1.80 that should represent.
In any case, the authorities should go further, ensuring that at least 10 or 15 per cent of oil trades involve actually delivering some physical oil. At present almost all “oil trades” are conducted by financial traders, who exchange nothing but electronic tokens or pieces of paper.
As these pearl(s) of wisdom sink in the rigging of all market(s) and not just commodity prices brought to you by the "Western establishment" that make crime a work of art.
Let's take a brief stroll down memory lane and show you first hand what a grip those Central Bank managers have on us and how reluctant the people in government that are responsible for upholding the "rule of law" when those so-called "market(s)" are fraudulently rigged by challenging the authority of those Central Banks actually are...
From 2009 Ben "Shalom" Bernanke on Capital Hill telling the good Senator from Tennessee not to fuck with him even after the American people bailed his friends out in the largest settlement in U.S. history -no questions asked!
Woah!
Is this that price discovery we've been waiting for. Mark to market? true vaule of goods?
Fucking A!
I started my oilfield product mfg company in 1989. Oil was at $9.00/barrel. There was plenty of work. Anyone who thinks oil is a free market is complicit. No price-fixing? Right. The table is tilted; the game is rigged. I miss George Carlin. All the great truthsayers are dead. That's what you get if you don't shut the fuck up and play along. Ignored and ridiculed. Then dead. Is where I was headed with that. So...
what a fucking baby complaining about financial warfare. get used to it bitches. THIS IS SPARTA !.
"In any case, the authorities should go further, ensuring that at least 10 or 15 per cent of oil trades involve actually delivering some physical oil. At present almost all “oil trades” are conducted by financial traders, who exchange nothing but electronic tokens or pieces of paper.'
The value of everything tangible is being valued in a massively leveraged intangible 'market'. At some point, those working in the intangible will want to exchange those chits for the tangible, whether it be wheat, or oil, or other. And they will be out of luck as delivery will not/can not happen.
That will be the *oh sh*t* moment.
Considering Russia is one of the largest producers of gold, it is a bit hypocritical/ironic for him to be bitching about manipulation. If he had any sense, he'd call his vodka swilling buddies over on the gold side and tell them to stop selling production into the market and just hold it. Change that supply/demand equation.
Rule number one in diplomatic espionage. You don't do 'things' just because 'you can'. You store up all your 'you cans' and depoy them strategically.
This comment does not make too much sense for two reasons: (1) we have meanwhile learned that the market prices are determined by paper transactions because the paper markets are so much larger than the physical markets (2) as regards Russia indeed a lot of the production is absorbed by purchases from the russian central bank. We should also always keep in mind that the real physical holdings of central banks are unknown they the are not audited and enter physical holdings and receivables on the the same balance sheet line.
you rather call your whiskey swilling buddies.
It it the same obvious conclusion. What started as the "us presidential cycle" to manipulate the economy and stocks before the elections is now a fully fledged tool for the US government and its institutions the FED and the other banks for geopolitical purposes. Free markets are a farce. Just look at the "price" of oil in 2007 versus 2008 from almost 150 to 35 $ cratering along with stocks. That was also "demand"? That is why GS and CITI have a sell on oil.
Correct.....so what would reality look like?
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Really like the 'skin in the game' approach of including at least some physical stuffs in commodities trading above a certain threshold.
Call it the 'Keepin it real' rule.