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The Multi-Trillion Dollar Oil Market Swindle
Submitted by Leonard Brecken via OilPrice.com,
In the past, I documented the overstatements by both the IEA and EIA in 2014 & 2015 in terms of supply, inventory and understatements of demand. Others also noticed these distortions and, whether intentional or not, they exist and they are very large in dollar terms. These distortions, which are affecting price through media hype and/or direct/indirect price manipulation, are quite possibly the largest in financial history.
Putting numbers behind it, with worldwide production running some 95 million barrels per day, and assuming $55 per barrel for oil, the market for crude oil is about $5.2 billion per day. Each $10/Barrel change is worth nearly $1 billion/day or $365 Billion/year for the worldwide crude oil market. Add the worldwide equity market caps of oil and oil related equities and debt you have a scandal that is in the trillions; a number that cannot be ignored.
According to Cornerstone Analytics, who have documented the IEA systematically underestimating demand in 2012-2013 only to revise it higher quarters if not years later, the EIA has created the appearance of an imbalance of supply by some 500 million barrels or $2.5 trillion in the last 5 quarters alone. This has easily swung oil by at least $20/barrel if not more.
I have maintained that oil should have corrected to around $70 in the fall of 2014, tied to U.S. production increases which at the time represented the price at which drillers would continue to add to supply. That price tied to cost reductions has probably been reduced to $60ish currently. But today, with the consensus oversupply widely quoted in the media as some 2 million barrels per day worldwide, it’s clear that if the numbers are correct below, the perceived oversupply wouldn’t exist at all. Suffice it to say prices would be at least at the point where production would need to be added, perhaps around $60-$70 per barrel, if not higher.
Assuming that number at $70 and with the blended average of WTI & Brent at $55/Barrel approximately, at $15/Barrel given the 95 million barrels of global production, then we can estimate that global oil markets are being undervalued by about $1.425 billion per day or over $500 billion per year.
Furthermore, I don’t even take into account whether oil futures are being manipulated (much like FX, GOLD, LIBOR – all have been either accused of or been caught in rigging scandals) along with every other commodity as a result of oil’s collapse and its financial impact.
Why regulators, and especially the media, refuse to address this, even in theory, and instead choose to perpetuate the falsehood of oversupply is beyond me. In the last two months, E&P equities fell 10 weeks in a row, which hasn’t happened since 1989.
To answer our own question on why this entire event is being largely ignored, maybe that oil is thought to spur higher economic growth as suggested previously. But so far that has yet to even materialize as U.S. GDP growth has actually slowed, not accelerated. Only time will tell whether this exaggerated move in oil, as well as its volatility, is justified or not. As reported here, the EIA has already revised lower, though only slightly, its prior month’s production forecast as we predicted. Look for more of this to come.
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I think that that missing oil is the illegally sold oil.
Black market oil: http://english.alarabiya.net/en/perspective/analysis/2014/07/29/-Rogue-oil-sales-of-illicit-cut-price-crude-in-Mideast-surge.html
But also there is a lot of black market oil in Western Africa.
The reason for the drop in oil prices was simple over investment in the sector, but to find the root cause you need to dig deeper. You’ll find the cause is no different than the cause of the dot.com bubble, housing bubble, bond, education, and auto bubbles.
these asses from oilPRICE.com have no shame. how long has this article been sitting in the wings waiting for a deal with Iran? unleashed on the day of the deal? GOOD fucking GRIEF!!!! mucho oil about to hit the market from Iran and these clowns are writing how "all" the past figures have been a fraud.....so as to continue the fraud with more bad figures? someone on the wrong side of this bet? I see his next article will be after the flow of oil from Iran hits.......back in july i told you how "all" the figures were a lie. now i am here to show how all this massive oil from Iran means nothing....see if we take "all" the bad figures and the new oil from Iran we really really really are just at break even and oil should be.......$80. do i laugh now or cry?
Crude prices may be down but here in California we're paying $4.10 /gal for gasoline.
yep....record oil production means higher gasoline prices.....panic peak gasoline. brain fart..can i work for oilprice or do i start gasolineprice.com
I was shocked on the way home last night... in 1 day (from last weekend) the price per gallon went from $4.08 to $4.86. I'm not making that up.
You should change your name to Stuck in California... I left that shithole nearly 8 years ago and couldn't be happier.
You are a fucking douche! What about the "imbalances" that took oil to $140? The price of oil has been a sham for decades. Don't act all indignant when the price scam doesn't work in your favor. Oh, and another thing. GOOD DAY SIR!
I said GOOD DAY!!!!
Awesome. Spot on.
The same applies to Gold/Silver.
Bubble popped in 2011 and the lemmings believe it is a great conspiracy why Gold is not at $5000.
@Bangin,
Thank you. It seems this whiney fuck can't stand the fact that just because he is long oil, oil doesn't oblige. More importantly, he doesnt' seem to understand that if there ain't enough oil to service demand, then we got what even five-year-old children could recognize as a shortage; things there ain't enough of go up: just look what it cost Covington and Burling to buy the only criminal Attorney General alive--that isn't named Alberto.
"Add the worldwide equity market caps of oil and oil related equities and debt you have a scandal that is in the trillions; a number that cannot be ignored."
I got $20 real cash money says he's wrong about us not being able to ignore that. Anyone want some of this action?
"The Blissful Sheep" is a good name for a punk group.
So yeah, big oil and the Saudis are enmeshed in this "plot" to under-price oil so as to goose economic growth is the deal?
Good Let's keep it that way because with all the money I'm saving on full-ups, I'm what's referred to this morning by Missy Bigtits on BBG as money on the sidelines to make the stwalk market go up.
Money on the side lines money on the side lines money on the side lines.
Nah na nah na nah na
An amazing number of people are in serious need of detox.
And that's why retail sales went banana shit miss the estimate on the down side bad. Money on the side lines, money on the side lines ...
Nah na nah na nah na
see dammit, I told you all we'd hear is yammering over "money on the sidelines" when all this crap started with China and Greece two weeks ago... it's a fallacy they drag out every time there's a down swing...
I just want to know when the price hedges run out. Tick tock.
Someone is taking delivery of these contracts.
But if the goal of the Fed is create growth, buying oil contracts and selling them through their own "dark pools" at a discount is doable, since Fed profitability is irrelevant.
Same can be said for meats, particularly live and feeder cattle. Few are buying beef at the stores (very expensive), but CME prices are holding.
Could be a barry mission whereby the below market priced beef is shipped overseas for MOAR wealth redistribution.
there's too much confusion here
Energy price repression is an economic aspect of the western war against Russia.
I certainly could be wrong, but it seems to me that it's just that simple.
Also, could those "lost barrels" be part of the western hegemonic material support for ISIL or however we're calling (what used to be known as) AlQaeda this week?
I agree. Manipulate data to squeeze Putin.
What a fucking retarded article
What a fucking retarded comment
Note: My opinion on this comment is not necessarily reflective of my opinion of the article...
If we get rid of derivatives and bankers things might be closer to true value.
"Why regulators, and especially the media, refuse to address this, even in theory, and instead choose to perpetuate the falsehood of oversupply is beyond me."
Regulators ignore this for the same reason ALL manipulated economic numbers are ignored.....for political reason.
The MSM ignores this because they are now all owned by huge entertainement corporations, and are more interested in getting high "Kardashian" ratings than doing real news.
The futures market? Manipulated? Say it isn't so.
The price of oil is below $60 for one reason and one reason only... because for more than a decade it was believed that oil below $60 would lead to WWIII and WWIII is the goal.
if FX, interes rate markets, equities, and bond marekts are all rigged - why would oil be any different?
its good to be a Gov-Co insider - because its so easy to make money going long running up the price and then going short and then crashing the market. Again and again and again and again and again ....
Yes its true that human market particiants realize its all a scam and have quit trading - but there are pletny of robots to take their place. And, so long as Goveremnets can continue to buy financial assets with tax revenues from the future, everything is going to be okay .
NOBODY manipulates oil prices DOWN. What a stupid idea in a world of greedy bastards. Everyone is out for every last fucking penney they can get.
Except if you're short, or a net consumer, in which case you want to save every last fucking penney you can. So, that...
They have to buy sometime. Drive the price down, buy cheap oil, oil wells, oil company stock, run the price up, PROFIT, sell short, drive the price down, cover shorts and buy, PROFIT, lather rinse repeat.
BS!
IMHO; This is either a set up for the dupes with somebody and their bbf's being long and going short tomorrow or vice versa or a set up for the dupes.
There isn't any imbalance in oil production and demand. It is what it is.
Perpetual growth ain't, because.
RICO all banksters, their political hos and 82 thousand lawyers.
The low oil prices has not correlated to the same low gas prices as the last time oil prices per barrel were this low, at least not in the northeast.
Gas reached over $5/gallon in L.A. this week.
Of course government employees and contractors don't mind wasting their subsidized lifelines to finance lifted trucks and SUVs.
All doing their part to "increase demand". I'm at the mercy of a boomer one and his assholery about it all - the wars, gas, shelter; I want to punch his lights out and gouge his eye out.
Military is seriously nothing better than a group of braindead barking sheep, they act like trash talking Nuland has a penis when she should be on the front lines of the war she provokes.
They're getting that equity line to buy a lifted truck and bullying people who don't have such things.
I've cut a few off myself :)
No seriously I'm a bitch myself- unlike Nuland I'm not provoking stuff.
But anyways. I'm impressed that people will spend themselves into a vast black hole . To drove their 300 pound @$$ in a overleveraged lifted truck to a McDonalds Drive through. ALL of them.
The drive throughs look like a trucking convention of privately owned vehicles to make sure that "demand" for oil is WAY up.
What a fucking wanker.
Who the fuck believes demand is rising..
Is China about to built a another 10 trillion dollars worth of ghost cities and fucking speed trains to nowhere.
Is there an oversupply of Steel and Cement production, and are the prices rising for those.
Oil is going below $40 not fucking $70.
Recession dumbo, fucking world wide recession.
And fucking is is manipulated UP by the fuckers on Wall St and the frackers buying their own oil to jack up prices to gull some more half wits to buy some shitty oil bonds
Go and flog your oil price is too low shite somewhere else
the missing purchasing value of the oil is the financial pressure to trade oil in NON-USD.
the longer this continues the more oil will trade is non-usd. eventually this will put dollar pressure on oil and usd prices of oil will rise.
the beauty of finance is not economics. it is a set of competing incentives and ecosystems.
EVERYTHING is relative. economics is nonsense in-so far as it generally attempts to discuss absolutes. finance is everything, especially in so far as it is simply a game of buying and selling (or doing neither) . finance is a ballroom of dancing partners. if it takes two to tango, then the price of oil is just a meaningless statistic on its own, whose meaning is seen in reflecting the meaningful underlying relative tendencies of the players.
ZH has been as guilty as any media outlet in pushing the oil glut thesis. We all want to believe that just part of what we see and hear is BS but sorry the whole package is a central planning directed con. Buy Oil.
My own conspiracy theory on oil. Most here will agree these politicians are always screwing with the “free market” which we haven’t seen in a long time anyhow. So Obama, the consummate politician went to Saudi Arabia and did the bow thing and then lo and behold within a short time frame oil prices went up real nicely. Why?
Well maybe, just maybe, the higher oil prices would help his domestic “green agenda” push. So there the domestic solar companies, global warming meme, alternative fuels etc all supported economically by "new" higher oil prices.
Flash forward 6 years and the geo-politics are now considered front and center. Solar is a bust outside of the Chinese manufacturers who we were then indirectly supported with US government “handouts”. Russia bad, Venezuela bad, Iran bad, all kinds of “bad” petro states. Send in Lurch Kerry and tell the Saudis to open up the spigots and cavitate those damn frackers and take away all the cash flow from all the international enemies of team Obama. I think this whole thing is just one massive political manipulation.
I always like simple and this is simple and makes perfect sense that the politician would dream it all up.
So when someone goes to buy oil, the price they get is driven,$20 worth, by media hype? If it is moved by media at all, it's because media stories affect speculators and their actions. But the author denies that he's addressing speculation.
This must be a spoof.
The United States and Greece share many commonalities. In this instance, a highly contagious disease, commonly contracted through unprotected mental intercourse with ideologues such as Krugman. This particular disease is known as Keynesianism. The disease debilitates the host by corrupting its cerebral cortex and establishing a degenerative addiction. This affliction forces the host to in-debt itself through debt monetization and debt instrumentation. As the disease worsens, a borrowing and spending frenzy occurs in a futile effort which exacerbates the condition. In the terminal phase of the disease, the host attempts to achieve escape velocity by borrowing itself out of debt.