Read it at Naked Capitalism
I outlined in a recent post my view that the oil market price has been inflated twice by passive (inflation hedgers) investors, albeit with short term speculative spikes from active (speculators) investors: once from 2005 to June 2008; and again from early 2009 to date. In attempting to ‘hedge inflation’ passive investors perversely ended up actually causing it, and allowed oil producers to manipulate and support the oil market price with fund money to the detriment of oil consumers.
But there has always been a missing link – precisely how has this manipulation been achieved?
Chris Cook: The Ghost of Enron Past Explains Oil Market Manipulation
By Chris Cook | former compliance and market supervision director of the International Petroleum Exchange
13 comments:
Interesting comments by Philip Pilkington over there wrt peak oil and the % of cost of oil that is in other commodities...
Resp,
It seems that if something is dirty then the vampire squid has it tentacles in it. I believe GS should be investigated for a lot of things, but unfortunately I suspect they own both parties and it ain't going to happen. It is really sad.
I think I'm dense. I seriously don't understand why financing oil reserves is any more destructive than allowing the ponzi scheme that is real estate to be leveraged at 20 times by low income borrowers and drive up the price of housing to dizzying levels, or options on the roulette that is the S&P 500 or surfing the yield curve in pension funds for good capital gains now and lousy income later. If a producer can't borrow against reserves or production, how do these critics suggest they finance their business? People aren't nuts -- there is a limited amount of oil and it is harder and harder and more destructive to reach. So whatever the motivation for raising the price -- its hardly irrational. The irrational part is why Americans refuse to use any of the myriad alternative fuels. Create complex conspiracies on Saudi Kings, Investment Banks, Enron greed or whatever the progressive paranoia of the week is...its only going to get worse until you fill your car with something else.
Obama said it: "we need higher oil prices to have other energy sources being competitive", and to stimulate investing and competition on these areas too.
This is one of these things where you see how obtuse humanity can be, running news on environmental destruction along rants on how expensive oil is. Please, the people should get over it and decide what they want, you can't have it all like spoiled kids.
We want not to be dependant on despotic arabs, we want to forget about wars in the ME, we want a sustainable life style; yet we want more and more consumption of oil, more and more production of crap, cheaper resources, forever growing population and eternal 'growth' etc.
I agree the futures market are a joke (specially its volatility) designed to extract wealth, but still there are good fundamental reasons on the floor on commodity prices and bullish trends. America consumes most of the oil and the world and is less that 1/20 of the populaiton. Get over it for fucks sake!
Lev,
"Obama said it: "we need higher oil prices"
If they get the morons at the FRBNY to handle the sale of the govts SPR oil, I'm sure he'll get his higher prices!
Resp,
PS: Buy LEAPS Puts on USO here?
resp,
Out of the money long put ratio spreads is a good play here, and yes LEAPs (or at least > 6 months until expiry).
I went short silver a couple weeks ago using this, a bit scared of the false breakthrough to the upside (had limited risk to premium though, so was fine), but now in profit.
2-3 quarters top I see oil crashing 30% at least (but still think, we will have higher lows).
The SPR is designed as a buffer stock of oil to be used to moderate price volatility (which dampens speculation) and also to buffer shocks to the economy that might occur from a sudden rise in prices (such as is occurring). I don't see a problem with using the SPR as a temporary buffer under the circumstances, while the country is still in recovery.
But if using market price to ration use and spur investment is not realistic, and it is not given the role that petroleum products play in the US economy, there have to other solutions implemented to resolve the issues in a more permanent way.
I remember listening to the Exxon VP for alternative energy say in a discussion on NPR that Exxon is not a oil company but an energy company and it intends to be in the forefront when the inevitable switch over comes. He said that for example, they are ready to go to hydrogen now, but the cost to the consumer would be impractical economically and politically without a huge government govt subsidy for at least five years, probably amounting to several trillion dollars when all the elements are considered. But he said that it was now doable in their estimation. He suggested tha the government could first adopt it for all government vehicles and the military first in orde to ramp up the new energy system.
Instead of giving trillions to banksters to prop up the oil market the governments should print trillions and spent it to radically change the current energy and most important, transport system and energy efficiency. This is one of these places that partnership between corporations and the state and a little amount of central planning/coordination could help (instead of central planning of credit growth and interest rates which FAILS!).
It can be done NOW, with cheap reserves yet available. If we wait too much, in 30 years we will have a world war for resources. So yes, please, trillions on this now I approve, a 5-10 year plan and no issuing of public debt securities, the rentiers had enough of that. But not wasting money ala Halliburton in Iraq.
The world is in serious need of this.
Prince Dickweed of SA recently said they were happy at $100 I believe... Looking at this thru Warren's view as SA being the swing producers, perhaps that is the current floor... this form of spec activity that Cook documents here could perhaps send the price higher...
If the govt gets involved thru SPR sales though all bet are off imo..... it could go a lot higher.
Resp,
With the largest reserves in the world, when will Canada replace the Saudis as the price setter, how much production do they need to have to be able swamp out the ME?
TB,
Seems like the key thing is being a "swing" producer... ie you can let your production go up or down as needed to maintain price level.
SA is well supplied with USD balances at their current approx 8 Mbpd and $100 looks like. Approx $24B/mo. Based on their population of 19M that's about $1250/mo per capita. $15k per year.
I think Libya collapsed close to IIRC about $5-6k per year per capita.
How far they can let production fall as other suppliers increase production seems to be the key future event to try to predict.... 7Mbpd? 6Mbpd? 5?
Seems like they will lose control eventually as more non-OPEC supply comes on the market, but that may take a while without more conservation and non-opec production ramp up...
TB,
Also I believe that type of price setting activity would be illegal in Canada... OPEC runs in Switzerland so they get away with it there...
Resp,
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