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Oil Manipulations Exposed

Oil Manipulations Exposed

By Phil

As it’s Memorial Day, let’s try to remember what our troops are fighting and dying for – Oil.  But, not oil itself, they are fighting and dying for oil profits and that is not the same thing at all!

The first Gulf War was clearly about oil, Saddam invaded Kuwait because he wanted their oil and we went to war and pushed him back.  Even though Saddam’s troops lit Kuwait’s oil fields on fire, and even though there was a tremendous disruption in global supply, oil prices only briefly went from $20 to $30 (inflation adjusted dollars) before falling all the way back to $12 between 1990 and 1998.  There has been no major supply disruption during the Bush II War.  What is the difference?  Manipulation!

This chart [currently not available] only runs through August of last year, when a barrel of oil could still be had for $75, not far from HALF of last week’s peak at $135.09.  Did demand double since last August?  No, it actually declined over 2%.  Did global stockpiles decrease?  No they are flat.  In that case, the real question is – What kind of idiots do the MSM and our very own government (yes you Sam Bodman!) take us for when they say there is no speculation in the energy markets???

The consumer group, Public Citizen, put out reports warning us in 2001, and 2004, and then testified before Congress in May 2004 that the mergers of US oil companies were, in and of themselves, driving up prices by forming a de facto US cartel.  These findings were backed up the findings in a 240-page report to a still-Republican Congress.  The Q1 profits of the 5 companies that now control close to 70% of all US gasoline – BP, COP, CVX, MRO and XOM – has gone up from $8.7Bn in Q1 2000 to $26.4Bn in Q1 2008, a 203% increase, outpacing the S&P 500 by 140%.

You will hear a lie repeated over and over and over again in the media and parroted by oil apologists all the way up to Energy Secretary Sam Bodman and Vice President Dick Cheney (and I’ll have more to say about him later this week!) that there is no manipulation in the energy markets.  It is an absolute lie! 

Santana Energy and others out of Texas were fined in 2001. Some utility companies were forced to refund the consumers hundreds of million of dollars due to manipulation of pricing and billing – many of those shenanigans stem from the Enron debacle, some precede it and continue on to date.

A class action lawsuit has been filed against EnCana Corp., its marketing company, and sixteen other companies and corporations on behalf of Fairhaven Power Co. and all other business entities in the state of California that purchased natural gas between Jan. 1, 2000, and Dec. 31, 2001. The suit alleges a massive scheme to control the flow and prices of natural gas that was sold within California, which is a violation of U.S. antitrust laws. The suit further charges the companies with false reporting of natural gas prices, of conducting "wash trades" designed to boost trading volumes, and conspiring to avoid competing with each other in the pricing and sale of natural gas in California.

A class action lawsuit has been filed against Centerpoint Energy Inc. and other natural gas suppliers on behalf of millions of residential customers in Arkansas, Texas, Louisiana, Oklahoma, Mississippi and Minnesota. The suit alleges fraud, unjust enrichment and claims that a conspiracy between the companies has led to the artificially inflated natural gas prices.

In a judge’s ruling, a company who provides gas and energy supplies was found to have aided in raising the price of gas and electricity in California during previous energy crisis. The El Paso Corporation allegedly withheld natural gas, and in doing so, raised both gas and electricity prices.

Members of the Federal Energy Regulatory Commission issued a report on the 2000-01 energy crisis in the West. It said it found evidence indicating Reliant Resources and BP Energy, both based in Houston, appeared to have engaged in coordinated efforts to manipulate power prices at a trading hub in Arizona.  In 2003, BP an Relian Energy admitted to price fixing in California and paid a $3M fine.

New York’s wholesale energy market is currently being investigated for possible antitrust violations, according to a recent news report. A Newsday story indicates that a subject of the investigation may be possible withholding of capacity from the market, to drive prices up.

At the same time as all the flagrant manipulation was going on by members of the US oil cartel, our own President Bush, in November of 2001, directed the DOE to fill the SPR "without regard to crude oil prices" and a report issued to the Permanent Subcommittee on Investigations in March of 2003 found "In a 1-month period in mid-2002, crude oil price increases caused by SPR deposits spiked the U.S. spot price of home heating oil by 13 percent, jet fuel by 10 percent, and diesel fuel by 8 percent, imposing on U.S. consumers additional crude oil costs of between $500 million and $1 billion. Since then, high crude oil prices have boosted the cost of gasoline, heating oil, jet fuel, and diesel fuel, generating the types of adverse economic impacts on U.S. consumers the SPR program was designed to prevent."

That same study made the following observations (all easy to read details in the first 11 pages):

1. IN 2002, DOE BEGAN TO FILL THE SPR WITHOUT REGARD TO THE PRICE OF OIL.
2. FILLING THE SPR IN A TIGHT MARKET INCREASED U.S. OIL PRICES AND HURT U.S. CONSUMERS.
3. FILLING THE SPR REGARDLESS OF OIL PRICES INCREASED TAXPAYER COSTS.
4. DESPITE ITS HIGH COST, FILLING THE SPR DID NOT INCREASE OVERALL U.S. OIL SUPPLIES.

5. 2003 SPR DELIVERIES WILL DRIVE OIL PRICES HIGHER.
6. U.S. CRUDE OIL FUTURES MARKET NEEDS TO BE IMPROVED.
7. THE UNAVAILABILITY OF KEY INFORMATION ON OVER-THE-COUNTER TRADING ACTIVITY MAKES
DETECTION AND PREVENTION OF PRICE MANIPULATION DIFFICULT, IF NOT IMPOSSIBLE.

Not to seem paranoild, but if you Google this main report you will find most copies of it erased (you are redirected to THIS page).  I checked the above link and it works as of Monday at 9am but I’ve never seen so many dead links associated with a government document before so let me know if this one disappears too as the report is completely contrary to everything the government is currently telling us.  The SPR IS causing high prices and they knew it way back in 2003, and the "Enron loophole" was already causing problems and price manipulation was suspected then, but UNPROVABLE due to the loophole. 

Unprovable doesn’t mean there isn’t any proof folks…  And remember, it was Enron and then-Texas Senator Phill Gramm who provided the biggest push to pass the energy trading deregulation bill in the first place  –- The Commodity Futures Modernization Act of 2000 (S. 2697, 106th Congress), passed during the lame duck session after the 2000 election.  The Democrats tried to have it removed in vote on 4/10/02, which was lost by one vote but the Republicans rallied to table on Feinstein’s bill on June 11th, 2003, effectively killing the opposition.

Many traders have moved to the unregulated over-the-counter exchanges that do not require companies like ExxonMobil or Goldman Sachs & Co. to disclose information about trades. "The lack of information on prices and large positions in OTC markets makes it difficult in many instances, if not impossible in practice, to determine whether traders have manipulated crude oil price," said Tyson Slocum, research director at Public Citizen.

I don’t know a good site for tracking NYMEX contract volume from open to close but here is the flaw in A’s logic (and User 198.. is close to the truth of it) – There is currently an "open interest" on the NYMEX for 378,974 contracts, representing 1,000 barrels each, that is the "demand" for July.

At the peak of June trading there were close to 450,000 open contracts but the NYMEX allows traders to "roll" open contracts to longer months WITHOUT PENALTY and by the close of the June contracts, less than 30,000 contracts (30M barrels) were actually finalized for delivery. The other 420M barrels that were, at some point, contracted to be delivered in June, were "rolled" into July, August, Sept. contracts.



You can track this nonsense here on a daily basis:



futures.tradingcharts….



Notice how there are 378,974 barrels "ordered" for July and 91,509 for Aug and 94,177 for Sept and 49,177 for Oct. I will tell you for a fact, right now, that on June 24th (close of July trading) there will be LESS than 40,000 contracts accepted for delivery. All but 40M of the now 378M barrels that could be delivered to the US PER THE EXISTING CONTRACTS will be cancelled by these evil, manipulative bastards in oder to create an artificial shortage of oil each month while driving up the apparent demand for the next month by rolling the contracts forward.



That’s how the scam works.



Also, note that the "front month" contracts, the one they print on CNBC etc., rose $1.38 today, but longer contracts were negative.  The Dec 2015 contracts that they couldn’t stop talking about and pointing to just 2 days ago when they crossed $140, have quickly and quietly dropped to $132.77 just 48 hours later.



futures.tradingcharts….



It’s very easy for the oil apologists to point to all sorts of abberant statistics to try to confuse you. China demand is a classic example – it’s up 40% in the past 5 years. What they don’t tell you is that that 40% was a rise from 5Mbd to 7Mbd but Chinese production went from 1.6Mbd to 4.1Mbd during the same amount of time causing them to import 500Kbd LESS than they did in 2003.



No, it’s much better to scare you by saying 40% even though that 40% is about how much fuel we would save in America if we simply inflated our tires properly (10% x 20Mbd).



Mark Twain said "There are three types of lies: Lies, damn lies and statistics." Always be wary of people who throw them around without letting you take a look at the sources for yourself. It’s hard to pick up in the text on Seeking Alpha but I try very hard to have links to all my stats. When CNBC shows you the Dec 2015 contract one day to "prove a point" and then doesn’t show it again, you need to be suspicious.



Just ponder that those 378,974 contracts were traded on the NYMEX today 425,099 times. That’s a churn rate of 115%! The net change in price was 1% and the net change in open interest was less than 1%. What would you think of a stock or option contract where the entire float turned over in one day? This is what goes on EVERY SINGLE DAY at the NYMEX.



425,099,000 barrels of oil were traded today, readily available to any trader who wants them delivered in July, with another 136,725,000 August barrels traded and another 73,297,000 September delivery contracts written, yet in not one of those months will more than 42M barrels ever be delivered because that is the transfer capacity at Cushing, OK.

So the ENTIRE thing is a joke. People are ordering barrels they don’t want with contracts written for a place that will never accept delivery AND, if anything actually happens to disrupt supply, there is a loophole called "Force Majeure" which allows the contracts to be cancelled by the shipper due to "supply distruptions" so they are not even buying insurance.

The only thing they are insuring is that they will bleed you dry by forcing you to pay $130 a barrel for something that has a global average production cost of $42 a barrel. This is nothing less than the single largest con in human history and your "reliable sources" are a government that was elected thanks to hundreds of millions of Petrodollars of campaign contributions and a media that is owned by companies that either are energy companies or accept millions of dollars from energy companies.

The 30M barrels of oil that were actually accepted for delivery in July set someone back $4Bn, that sounds like a lot until you realize that that $4Bn locked in a price increase of $25 a barrel during the month of May x 85Mb a day worldwide or $65Bn bonus dollars paid to the same people who are churning oil contracts in the pits.

What if you had 15 shares of IBM at $100 and the price of the last trade on June 24th will set the price you can sell IBM for in July. What if you could buy that last contract for $150 and that would let you sell the ones you are already holding for $150. You would spend $50 extra for a single contract but would collect $50 more on the 15 you have for a net profit of $7,450!

Would you do it? Do you know anyone who would? Do you think no one would?

That’s how the NYMEX works. Those 30M barrels that are "accepted" at the contract close determine the price of the 85M barrels PER day that are delivered for the 31 days of May. That’s 2,635 barrels over 30 or 1/87th.

This is how you are being ripped off, this is how the manipulation operates, this is the only reason that oil is over $70. There is no shortage, there is no great demand, there is just a greedy cadre of immoral people who manipulate a system that costs the American people $500Bn a year (the premium we’re paying over $70) just so they can skim a few million for themselves.

EXCUSE THE MESSY ARTICLE BUT I FIGURED IF ANY OF YOU ARE BORED YOU MAY WANT TO COMMENT ON MY ARTICLE IN PROGRESS – ANY SUPPORTING LINKS WOULD BE GREAT.  Have a good day, Phil

Have a happy Memorial Day weekend folks!


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  1. Andy

    Phil, what a marvelous article, glad to see you up early and in excellent form… thanks

  2. furnace73

    Phil,
    Fantastic article (as always).  I came across this article from The Economist and wondered your thoughts on it.

    OPEC May 23rd 2008 The price of oil is beyond $130 a barrel. Where will it stop? THE price of oil may soon hit $200 a barrel--or so, at any rate, believes Shokri Ghanem, Libya’s oil minister. A few years ago such a prediction would have seemed absurd. But the price has doubled in the past year and has risen by 40% this year alone. It touched yet another record, of over $135 a barrel (before dipping slightly) on Thursday 22nd May. So more spectacular increases seem all too plausible. The immediate trigger for the latest jump seems to have been an unexpected fall in American oil inventories. But stocks, although falling, are not particularly low: in America, they are only slightly below the average of the past five years. Supplies of petrol and other refined fuels are actually a little above average. And since demand for oil and petrol are falling in America, lower stocks are not as much of a worry as they might normally be. Mr Ghanem’s explanation for this curious state of affairs is to blame speculators, who are investing ever more enthusiastically in oil futures. Many others share his view. Joe Lieberman, an American senator, points out that the value of investment funds that aim to track the price of oil and other raw materials has risen from $13 billion to $260 billion over the past five years. He blames these "index speculators", for a big part of the commodity-price increases. He and his colleagues in the Senate are so worried that they are contemplating measures to curb the traders’ exuberance. Yet few bankers agree that speculation has much to do with price rises. For one thing, indexed funds do not actually buy any physical oil, since it is bulky and expensive to store. Instead they buy contracts for future delivery, a few months hence. When the delivery date approaches, they sell their contract to someone who actually needs the oil right away, and then invest the proceeds in more futures. So far from holding oil back from the market, they tend to be big sellers of oil for immediate delivery. That is important because it means that there is no hoarding, typically a prerequisite for a speculative bubble. Indeed, as discussed, America’s stocks and those of most other countries are at normal levels. If the indexed funds were indeed pushing the price of oil beyond the level justified by supply and demand, then they would be having trouble selling their futures contracts at such high prices before they matured. But there is no sign of that. In fact, until recently, oil for immediate delivery was more expensive than futures contracts. Economic theory suggests that the future price is simply traders’ best guess of the shape of things to come. And traders seem to be very worried about the future. They recently pushed up the price of oil to be delivered at the end of 2016 to over $145 a barrel. They seem to be motivated by the sobering realities of supply and demand, rather than reckless speculation. The output of several big oil exporters, such as Russia, Mexico and Venezuela, is declining. Yet none of those countries allows foreign investors unfettered access to develop new fields or increase production from existing ones. Many of the most promising areas for exploration, including Saudi Arabia, Iraq and Iran, are in effect off-limits to Western oil firms. Worse, the cost of developing new fields is rising almost as fast as the oil price. Cambridge Energy Research Associates, a consulting firm, believes it has more than doubled since 2000. All this means that global oil production is growing only slowly. Global demand, meanwhile, continues to rise, thanks to an ever-increasing thirst for oil in fast-growing developing countries such as China and India. Their increased consumption is more than compensating for falling demand for oil in rich countries. In other words, the investors that Messrs Lieberman and Ghanem accuse of unfounded speculation may instead have concluded that the world will be short of oil for some time to come. Instead of hectoring speculators, perhaps Mr Lieberman should be hounding Mr Ghanem and the leaders of other oil-rich countries to allow foreign oil firms more access.

  3. xian

    im DDing and rolling up and out on this article….pimping phil, simply pimping.

    how long b4 these facts enter the debate?

  4. xian

    economist article- im not phil, but that article is misleading b/c it leaves out crucial facts like the continuos rolling that creates a virtual hoarding of commodities.

    if that article was anything other than a misdirection, then it would put out some numbers. u would think that the economist readership would b right at home w/ detailed figures on futures markets, but they r lowering the bar.

    very sad. i think the economist is losing it’s edge on higher level economic discussion. it’s still one of my favorite weeklys and they usually have great "special reports" (b/c they’re laden w/ facts), but the quality and depth of discussion in the common articles has dropped over the last 8 or so years.

    alright….back to red stripe and reggae.

  5. MJ

    Nice article Phil.
    How come the NYMEX does not charge anything for rolling the current month contracts. Wouldn’t they lose the commissions?

  6. Phil

    NYMEX rule: 

    Exchange of Futures for Physicals (EFP)
    The commercial buyer or seller may exchange a futures position for a physical position of equal quantity by submitting a notice to the Exchange. EFPs may be used to either initiate or liquidate a futures position.

    In other words, you can do pretty much whatever you want!

  7. Phil

    In the NYMEX guide it actually says:
    "Only a small number of contracts traded each year result in delivery of the underlying commodity. Instead, traders generally offset their futures positions before their contracts mature (a buyer will liquidate by selling the contract, the seller will liquidate by buying back the contract). The difference between the initial purchase or sale price and the price of the offsetting transaction represents the realized profit or loss"

    And also, under the heading: "Why Use New York Mercantile Exchange Contracts?"

    "The Exchange’s markets allow hedgers and investors to trade anonymously through futures brokers, who act as independent agents for traders"
    "The liquidity of the market allows futures contracts to be easily liquidated prior to required receipt or delivery of the underlying commodity."

  8. Demetrius Michael

    magical

  9. Demetrius Michael

    lol the economist is always misleading.
    How do you think we could stop the manipulation problem?

  10. xian

    DM- as u know, this stuff is very easy to understand. and w/ all the US congress research/investigations that have already been carried out, this makes the conclusion (commodity prices r being manipulated) pretty solid.

    i think we need to get these facts in circulation. last wed, i sent a letter to the editor of the economist where i simply said they should publish masters’ testimony.

    the only way to stop this is to have enough people talking about it and thinking about it- then it makes the agenda.

    im thinking about putting together a packet (hardcopy) of the things we’ve discussed here in the last week or so and send it to the colbert report and the daily show- still no progress.

    anyway. i think it boils down to a couple of points
    1- how OTC trades get around CFTC oversight thanks to CFMA 2000

    2- the perpetual rolling that keeps OI inflated and makes it look like demand
    2a- cushing capacity vs OI

    3- SPR impact on oil prices and china actual growth

    4- more points

    the facts need to come out- just like the subprime thing w/ the no-doc practices and ridiculously structured vehicles did- that seeams more difficult to understand than this.

  11. xian

    phil- by the way, i love calling b&llsh*tters "apologists"

  12. alf

    Lofty Prices for Fertilizer Put Farmers in a Squeeze 
    Major fertilizer producers deny any allegations of gouging. The say they are simply raising prices to reflect tight supplies and growing demand after years of relatively low prices.

    But there’s an unusual piece in the pricing puzzle: In several countries, obscure laws shield makers of potash and phosphate from certain antitrust rules. In the U.S., for example, phosphate makers are among a handful of industries empowered by the 1918 Webb-Pomerene Act to talk with competitors. "It’s an obscure act that’s moribund," says Jim Mongoven, an attorney in the FTC’s Bureau of Competition.

    In India, the head of one of India’s largest buyers of fertilizer is appealing to the United Nations for help. "The fertilizer prices are artificially going up due to the manipulation of traders and suppliers," said Udai Shanker Awasthi, president of Indian Farmers Fertilizer Co-operative Ltd., in an interview Friday. China, after initial protests, recently agreed to pay $576 per ton of potash, up $400 from its previous deal, to Canpotex, a potash export cartel protected by an exemption in Canada’s Competition Law.

  13. k1

    xian- if you’re trying to put together a packet of Phil’s NYMEX stuff, here are some links I’ve collected on the topic:
    Seeking Alpha article 1 and article 2
    Senate article on manipulation
    Oil pricing in dollars article 1 and article 2
    Manufactured oil crisis
    Fear and loathing
    Phil questioning his own sanity in the matter: Wednesday Wrap-Up
    Iran sailor-capture analysis
    Reinharden clarifying one issue about POO on MSM: Permalink
    Reinharden noting low margin to trade oil: Permalink
    Phil noting that big fuel user hedging drives revenue, hence "need" for fear: Permalink
    An alternate perspective: Permalink
    Confessions of an oil trader: Permalink
    Phil with a comment about how the scam works to influence prices: Permalink ("Derivatives")

  14. MJ

    Wow, the traders get so much previliges at the NYMEX, god knows what kind of sh*t they do at the ICE.
    ===============================================================
    Fasten your seat belts guys, there will soon be options on GLD, read on  …..
    ONE OF THE BEST THINGS about StreetTracks Gold Trust (GLD) is that it trades at about $86. It’s one of the worst things, too, because investors have not been able to use options to hedge and speculate on GLD’s journey from a 52-week low of $63.39 to a high of $100.44.

    All of that is about to change.

    After about four years of waiting, wanting, and whining, options on GLD could be listed as early as May 30, according to the Chicago Board Options Exchange.

    CBOE, like other options exchanges, is waiting for the Securities and Exchange Commission to issue an approval order for what is arguably one of the most-anticipated options products to be launched in the past five years.

    The introduction of options on GLD is expected to be followed by options on other commodities, such as silver, furthering blending the securities and commodities markets.

  15. stork

    Phil… brilliant!!  I feel like this blog, and your economic insight,  is a best kept secret. Again, thanks…

  16. windywheel

    phil,
    i know you’ll like this.  do you guys hang out together? 
    hope everyone had a nice weekend.

    BROADBANDBREW
    Market Update – 5/25/08 
    Oil
    Oil prices need to come down. The stock markets are going to have a very hard time making any advances unless the price of oil comes down at least 10% in the short term and much more in the longer term. The escalation of oil prices, which this week reached a previously unthinkable $133 a barrel (with predictions of $150 and $200 soon to come) threatens to do much more damage to the world economy than the credit crunch. Instead of just a short lived recession caused by the credit markets, the oil and commodity inflation can cause a world-wide prolonged period of stagflation. If you listen to analysts from Goldman Sachs and other Wall Street investment houses, they’ll scare the living daylights out of you with their predictions of $200 oil and $6 gasoline. The popular thinking out there is that oil is being driven higher by increasing demand from China, India and other rapidly developing countries.
    We think that’s a bunch of bull! Not because we’d like to see stocks we own go higher (although that’s always nice) but because we’ve seen all this before. The present commodity and oil boom shows all the classic symptoms of a financial bubble, such as Japan in the 1980s, technology stocks in the 1990s and, most recently, housing and mortgages in the US.
    The Gulf is reported to be crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. What this suggests is that there aren’t that many buyers for oil at current levels, but there are plenty of buyers for the paper contracts linked to the price of oil. This is no different than the mortgage backed securities market over the previous couple of years. No one was really that interested in owning sub prime mortgages but everyone wanted to bet on the derivatives going higher.
    So if we’re right, oil will crash and burn (no pun intended) eventually when the bubble bursts but until then we need to be very careful with our stock trades incorporating shorts as well as longs as the market is once again focused on another crisis.  
    Have a great week!
    -Anatole Raif, BroadbandBrew.com

  17. windywheel

    also, when this bubble does burst, how will it affect our other positions?  other than fully covering positions, are there other measures that ought to be considered?
    thank you.

  18. windywheel

    last comment:  very few drivers on the roads this weekend compared to most other holiday weekends.  went from NYC to MA.  no traffic friday leaving at noon, and no traffic returning earlier this evening.  a stark difference.

  19. FilmFlam

    Love the chatter this weekend.  Was sent the link to this week’s Mauldin newsletter.  The first half is about Master’s testimony and the second half is a sort of rebuttal from Pimco’s Bob Greer.  But, as I read it Greer’s rebuttal doesn’t hold up because he bases it all on the premise that the cash market will settle things out.  That obviously isn’t happening in the grain markets where you don’t have the small, powerful hubs able to obfuscate the cash market.  For wheat, the cash market has been unhinged for a year or more.

    Now, here’s a thought for you.  What if what we have going on in the massive front month rollover is essentially a long con waiting for a "Force Majeur" event to take out the "surplus" contracts.  If we had another hurricane that would knock out supplies, wouldn’t they essentially get to cancel the front month contracts?  So, for the price to break, we really need market reform before a Force Majeur event takes place, otherwise, we are STUCK with a higher oil price.  Is that right?

  20. FilmFlam

    Sorry, this the link for Mauldin’s letter.  http://www.2000wave.com/gateway.asp

  21. James

    Guys, I left Beijing and I’m out in the countryside and guess what – still no gas lines.  Lots and lots of stations with no cars though.

  22. Phil

    Popping the bubble – I think, like housing, it doesn’t take a particular event, just a change in sentiment. 
    Every month, they have to herd fresh money into the oil market while the big boys rent tankers at $2M a month to hold $200M worth of oil in a tanker expecting higher prices next month (and, by the way, what a total joke that everyone knows about these things yet they are not included in global reserves).  So let’s say there are just 50 tankers out there.  That’s still costing a collective someone $100M a month to hold 75M barrels of oil out of circulation.  If we assume most of the oil in tankers is owned by producers, they have a $40 cost and are foregoing $90 in profits x 75M = $6.7Bn, sadly not much in the grand scheme of things ($340Bn a month in oil is sold at current prices).  So tankers aren’t going to do it.

    I think, like housing, the breaking point comes when inventory is overfilled.  We are close now with our SPR full and private reserves at 5-year highs.  Now, in order to get someone to cut back 1Mbd in production, you are asking them to give up $130M a day, the Saudis can justify this as they sell 12M other barrels but countries that only pump 2M a day have a hard time not pumping 200K move as that is pretty much their whole skim off the top.  So, like anything else, greed ends up killing the market.

    The question is when and that’s not something that is easy to bet but, also like housing, I think the correction will fall a lot harder and faster than anyone expects.  The way I’m betting is we try to enter at a possible top with a light entry, then plan on rolling up and doubling down say from $130 to $160 when any $10 pullback will make us a huge return.  XOM is  down nicely but SU is still up there but the trick is to make sure you are always in a position where a 5% pullback will at least get you out even so you can reset the bet.  All it takes is one really good drop to make a lot of money.

    Yes the upside bets work too but, for me, I CAN make the right moves as oil goes higher and increase my risk because I feel it’s going to head down.  If I bet oil up, I don’t believe in the bet so it’s hard for me to roll and DD as it goes lower.  If you can’t make the adjustments with confidence, you greatly increase your chance of blowing a trade – that’s why always advise not taking trades you don’t believe in.

    Broadbandview – Yes, thanks Windy, I started getting their letter thanks to you as they seem to be on top of things!

    Other positions – I think that it is pretty well recognized now that oil is the problem and the markets should fare well  if oil comes down. 

    Mauldin – that is strange, he points out all the BS going on in the markets but then says "I think oil’s going higher."  It’s sad that speculators have such power and tragic when it has an adverse impact on so many people’s life.

  23. Phil

    Wow, listen to CNBC with the new "THERE IS NO SPECULATION" rhetoric!  Rick Santelli is emphatic about it but they are so misleading it’s sickening.

  24. alf

    Excellent article Phil. Pareto also pulls back the veil on MSM.
    Remember, dramatic headlines sell papers, much like the financial pornography we see on a regular basis across the financial networks on the tube. Sizzle grabs your attention and sells ads. Trying to predict the future is a loser’s game and nobody owns a crystal ball. If they did, believe me, they would not be sharing it with the rest of the world. The best defense right now is patience and discipline.

  25. newparadigmz

    from briefing this morning…what’s the options play for this?

    COMDX Wheat price may fall as farmers begin record harvest – Bloomberg

    Bloomberg reports that wheat prices, at their lowest in almost nine months, may tumble further as farmers start to bring in a forecast record crop, U.S. Wheat Associates Vice President Vincent Peterson said. Harvesting in the U.S., Canada, Europe and China will be in "full swing" in the next 90 days, making wheat more available and affordable, Peterson said in an interview in Tokyo yesterday. He declined to give a specific forecast for prices, which have dropped 44% from a Feb. 27 record of $13.495 a bushel. Plunging wheat prices may ease a global food crisis that has triggered riots from Haiti to Egypt. The world’s production of wheat, the most-consumed food crop after rice, may jump 8.2% to a record 656 mln metric tons in the year beginning June 1, according to the U.S. Department of Agriculture. Wheat for July delivery added 9.25 cents, or 1.2%, to $7.6175 a bushel on the Chicago Board of Trade in after-hours trading at 4:46 p.m. in Tokyo. The most-active contract touched $7.40 on May 23, the lowest since Aug. 29. Price gains prompted U.S. farmers to increase seeding of winter wheat last fall. The harvesting season starts in May.

  26. billbigd

    I like Rick, but I do agree that oil is priced to high right now

  27. andyajm

    Phil
    VZ in the 10KP is up 50%, what levels are we hoping to reach as it nears resistance.

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