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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coast's picture

It aint fucking so....

altho it IS fucking so, you asked me to say it isnt, I liked your post and accommodated.  Altho, not being a trader, I dont even know what ETNS and ETFS are, and to be honest, even tho I am an avid reader and study much, I dont care. :-)

 But whatever you wrote, I have a feeling its true :-)  I did understand the part about paper gold tho.. :-)

Insurrexion's picture

Exchange Traded Notes & Exchange Traded Fund, Baby doll.

Did you understand the gay bath house part? or sucking dick?

They do that too, ya know.

Tall Tom's picture

ETNs are the short side and ETFs are the long side?


Did they just engineer these like they engineered the Credit Default Swaps to trade the short side of the Mortgage Backed Securities?


When were these first offered?


This is the very first time that I have ever heard of the Exchange Traded Note. I know that ETFs are a derivative of an actual commodity.


So is the ETN just a Note as it is a promise to deliver such commodity as it has been borrowed?


Do you see the parallel?


In a glut are they trying to tell me that Oil is in Backwardation? Now that is fuckin' laughable.


Please clarify. Thanks.

Hongcha's picture

Anything too much.  They shot Seal Team 6 out of the sky to keep the Osama fable under wraps.  I would say no.

robertocarlos's picture

"In Philadelphia it's worth 10 bucks".

herkomilchen's picture

Translation: The PPT may be buying oil.

stingboo's picture

"Well..THAT escalated quickly.....I mean that really got outta hand!"  Sincerely,  Will Ferrell

yogibear's picture

Catching a falling knife hurts.

scatha's picture

FED is all over asses of the energy stocks and junk debt and oil.

Here is why: BL

 BLOOD ON THE STREET: Why is price of crude oil collapsing?



chistletoe's picture

They can buy all of the debt that they want .... but they still have one little difficulty in their manipulations...

if they want to actually buy oil paper, whether its futures or whatever,

then they must accept delivery,



As crude goes to zero, all the E&P companies STILL go bankrupt ....

and they still take the whole system with them ....

SweetDoug's picture

Newbie here…

I read the warnings about the ETNs that are the triple long/shorts with rebalancing et cetera, and that you shouldn't hold them for more than a few days.

I'm looking at the chart of DWTI and don't see anything but big money being made, and there's no decay due to options tracking, et cetea.




Peak Finance's picture

MY comment is that the world is fucking crazy and you don't know whats going to happen.

Being long any 3x paper overnight is asking to be raped.

g'kar's picture

The Plunge Protection Team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission. Just in case anyone didn't know.

razorthin's picture

I was scratching my head of Friday too.  I thought I was seeing an OIL misprint.

nidaar's picture

Riiight, just before the ARAMCO IPO...

Iconoclast421's picture

This has happened before:




Back in 2008, yes, right in the middle of the market selloff. On a plus note it did do this once right at the bottom for oil... unfortunately it did it two other times before the bottom.

Peak Finance's picture

I watch the OIL etn (full disclosure long a few thousand shares right now, some in the money some near the money) and posted last week that it flash smashed one morning like a full 24% then was crushed down to "normal" levels, then this crazy flash smash again Friday.

To me it was a sign that Fed is buying, or soon to buy oil paper. 

Look at the charts, OIL ETN is CHEAP AS SHIT right now, so, to it can't hurt to buy some hoping for Fed intervention, otherwise not much is lost. 

I am watching and own some OIL, USO, GAZ this stuff is trading multi-decade lows and options are still cheap, I would even say "miss-priced" for Fed intervention anyway, meaning that Fed Intervention is clearly not priced into this paper yet. 

IF I am wrong no big loss paid literally pennies for some of these contracts. 


John Law Lives's picture

How long until the WOPR gets the launch codes and launches the missiles...


Gregory Poonsores's picture
Gregory Poonsores (not verified) Jan 18, 2016 5:26 AM

How long before Goldman are suddenly long oil again?

Machete Republic's picture

Did I mention machetes do not need reloading? Plus you can use them to butter the morning toast. 

Omega_Man's picture

but the oil funds hold a lot of UST's perhaps they are worth more than the oil 

RichardParker's picture

I wouldn't touch the GSCI Crude Oil Total Return Index during a global depression with a 10 foot pole.  No fun trying to catch a falling knife.  The time to invest in oil was in back in 2015 with the triple inverse ETN for GSCI Crude Oil.