What Just Happened With OIL?

Tyler Durden's picture

Yesterday, we reported exclusively how the Dallas Fed is pulling strings behind the scenes to conceal the fallout from the oil market crash. As Dark-Bid.com's Daniel Drew notes, by suspending mark-to-market on energy loans and distorting the accounting, they are postponing the inevitable as long as possible. The current situation is eerily reminiscent to the heyday of the mortgage market in 2007, when mortgage defaults started to pick up, and yet the credit default swaps that tracked them continued to decline, bringing losses to those brave enough to trade against the crowd.

Amidst the market chaos on Friday, a trader brought something strange to my attention. He asked me exactly what the hell was going on with this ETN he was watching. I took a closer look and was baffled. It took me awhile to put the pieces together. Then when I saw the story about mark-to-market being suspended, it all made sense.

Here is the daily premium for the last 6 months on the Barclays iPath ETN that tracks oil:


Initially, Dark-Bid.com's Daniel Drew thought this was merely a sign of retail desperation. As they faced devastating losses on their oil stocks, small investors turned to products like oil ETNs as they tried to grasp the elusive oil profits their financial adviser promised them a year ago. Oblivious to the cruel mechanics of ETNs, they piled in head first, in spite of the soaring premium to fair value. After all, Larry Fink is making the rounds to convince the small investor that ETFs are indeed safer than mutual funds. Because nothing says "safe" like buying an ETN that is 36% above its fair value.

Sure, there are differences between ETFs and ETNs, particularly regarding their solvency in the event of an issuer default, but the premium/discount problem plagues ETFs and ETNs alike. Nonetheless, widely trusted retail sources of investment information perpetuate the myth that ETNs do not have tracking errors.

But was it just retail ignorance?

Something remarkable happened in the last hour of trading on Friday which sparked the massive decoupling in OIL from its NAV...


Making us wonder, was an 'invisible hand' at play? Or was this just more evidence of OPEX-inspired broken markets?

As Dark-Bid.com's Daniel Drew so eloquently concludes,

With the oil fallout quickly spreading, the Fed is resorting to behind-the-scenes manipulation of energy debt, and now, that apparently includes oil ETNs as well.

Is anything too much (too off limits, too conspiracy wonk) for them? Do they really think the ETF tail can wag the oil complex dog and rescue the disastrous MtM values of the US banking system's energy loans?

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Uncle Tupelo's picture

Vibrant and healthy markets. Just another sign of Recovery Winter VII. Enjoy...

glenlloyd's picture

I'm once again disgusted by things like Fed induced MTM machinations etc.

Desperate behind the scenes activity but on TV during SOTU "everything is fine, awesome, couldn't be better..blah blah blah."

Lying sacks of shit all of them.

Yes We Can. But Lets Not.'s picture

ehm...please pardon my ignorance...but I'm wondering if the plunge-protection team might, as it endeavors to impact this that and the other markets, be incurring losses - potentially gargantuan, and if so who ends up paying the tab?

I need more asshats's picture

The FED funds the PPT in order to correctly distort the selected market in their cross hairs.

Where does the FED get it's money? Exactly, The Magic Unicorn.

Mr. Universe's picture

Did oil break just break into $28? Blue Monday headed our way.

algol_dog's picture

Short the fuck out of this. This will get arbed out quick. Wonder if they're hard to borrow?

zeropain's picture

what you expect them not to lie and cheat to save the market?  stairstep this sucker down til third quater then crash.  I need cheaper shorts, bears will determine the boat load area ;)

NEOSERF's picture

The only true sin for the Fed is being called to Congressional hearings two years from now and saying they didn't try to do something.  Already they are in CYA mode for the coming collapse.

Max Cynical's picture

Somewhat related...

"US to pay Iran $1.7 bn in debt and interest: Kerry"


"The United States is to repay Iran a $400 million debt and $1.3 billion in interest dating to the Islamic revolution, Secretary of State John Kerry said Sunday."


Government needs you to pay taxes's picture

It's only paper/keystrokes.  As long as they promise to stoke inflation!!!

nidaar's picture

Iran should have demanded in gold rather than dollars...

fatlibertarian's picture

I just hope Obama is ready for all the "attacks by Iranians" now. The neocons will fuck him like a pig for this. Why do you think our troops suddenly ended up in Iranian waters a few days before the sanctions were to be lifted? 

Some serious shit is going on behind the scenes.

Consuelo's picture



Look at it this way:

At least the U.S. doesn't have to pay for all the fun & happy times it created in Iran when it 'regime-changed' Mosaddegh for the Shah...


Tejano's picture

But the Shah was a prince of a guy. Just swell!


TAALR Swift's picture

The US had been using Iran's frozen assets for decades.  Do the math and you'll determine that they're not paying Iran anywhere near what they have been making with Iran's money.

azusgm's picture

Well isn't that just warm and cozy?

besnook's picture

tuesday will be dark green if this keeps up. blowing shorts up?

ebworthen's picture

The FED is taking care of all those IRA/401K/Pension holders and retirees; just like they did in 2001 and 2008!  "Tied to the whipping post".

"Bail out the banks, screw the people, that or the tanks, herding the sheeple!"  Thanks FED & .gov; all hail Caesar!

BoNeSxxx's picture

Another ZH first that the MSM will either cover in 6 months or never. Thank you once again Tyler(s)

benbushiii's picture

This is the same thing they have been doing with SPY and the E-minis for over 7 years.  This may prove interesting since doing wash HFT trades in crude etfs and crude encourages the Saudis and Iranians (whom adore each other) to temporarily take advantage of a bid to create money for their debt problems. 

Uranium Mountain's picture

What's really so fucked up about all this is that it's like a person sitting down at a gambling table making the best choices they can with the cards they are given, they place their bets and the house suddenly switches a card of their own choosing while in the middle of the hand.  WTF?!!!

logicalman's picture

Hard to lose at a game you write the rules to and can change at any time to suit yourself.

The trouble starts when the players realise what's going on.


RiverRoad's picture

When you don't know who the patsy is.......

joego1's picture

Maybe they know in advance that some refineries are about to blow up in the ME.

azusgm's picture

Things are getting to the point that if some refineries in the ME happen to blow up, some cities in the US may do the same. Alternatively, something may explode at a high altitude over the US. That little test North Korea ran recently seems to have been successful. Other than South Korea, which has an suboptimal geographical location (if you are a fat little lunatic dictator with a bad haircut), southern California, or Houston, or NYC, or Wash DC, or Hawaii may seen to be worthy targets. If another military-minded person whose country has skin in the game and a slightly larger piece of ordnance, a drop into Yellowstone Park or a detonation high in the sky above Kansas could cause us to quit being a nuisance to the rest of the world (if we are responsible for a fraction of what we are accused).

Nage42's picture

HA-EMP to effect x100 Carrington event you say?


Pray that the worpd shoupd be so lucky as to have the bully stick taken away from the bully, though it seems painful to pray for something that invariably will lead to 10s of millions of knock-on deaths, might it be better than billions?

Depends on your bias... Seeking to maintain the status quo or hoping for the survival of our decendents?

azusgm's picture

The Luciferians will be in their bunkers. Our descendents will be topside.

buzzsaw99's picture

there are no rules for "them"

Eireann go Brach's picture

Obama the clueless fuck, just asked Yellen if they Fed can print oil!

"We can't have a market crash on my watch, otherwise people will think my presidency was not as outstanding as I think it was".

dreadnaught's picture

you can always 3-D model it...

Savvy's picture

Obama the clueless fuck, just asked Yellen if they Fed can print oil!


Ask Japan.

economessed's picture

The Federal Reserve is treating this like fireworks.  Removing MtM lit the fuse.  The propellent burns, sending things skyward.  Then the propellent gets burnt-up, and the object explodes, raining down tiny bits of burnt cardboard as the only evidence of a temporary colorful view of things in the sky.

Drain Bamage's picture

In fact, it's worse.  Given the recent breaking news on Iran, it's clear the administration is directing Fed trading.   

Arnold's picture

I am preparing the neighborhood Helipad now.

If they drop our share it will kill somebody.

CHoward's picture

If everything was fine, there wouldn't be any need to fuck around and manipulate everything.

whoknoz's picture

...I thought that under Sharia Law and Islam in general, it was immoral as well as ilegal to charge interest...

...guess it's OK to collect interest, howerver...

logicalman's picture

Those in power only have one god - power.

Control of money/currency is the tool they use.

azusgm's picture

They just whip out an amortization table and redefine P+I to be all principal.

Tall Tom's picture

That is just a Recursive Function...like a Mandelbrot Set.


Let P = P + I


The problem with that is that there is a point where the there is no resoution.


You know? Diminishing returns and all o' that.


Yes they are crazy.

GRDguy's picture

Lyin' begets stealin'.

U4 eee aaa's picture

and stealin' begets killin'

Insurrexion's picture

"Is anything too much (too off limits, too conspiracy wonk) for them? Do they really think the ETF tail can wag the oil complex dog and rescue the disastrous MtM values of the US banking system's energy loans?"

Let's see...what's in the unlimited fucking money tool box here?...

The Fed buys S&P E-minis, shorts gold paper, shorts VIX, buys inverse VIX, relaxes MtM accounting for their banker's bad loans, goes long on gay bathhouse shares, sucks dick on Mad Money, release poor GDP estimates after the market closes, and now they are buying fucking Energy ETNs behind our silky curved asses?

The Horror. Say it ain't fucking so.