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Monday, June 13, 2011

Energy and futures, a game in which few know the rules but we all pay through the teeth:

Banking establishments are more dangerous than standing armies.
-Thomas Jefferson LETTER CXXXII.--TO FRANCIS W. GILMER, June 7,1816
TO FRANCIS W. GILMER.
Monticello, June 7,1816.



Zero Hedge:


Oil Futures Fake Out

"The CROOKS (allegedly, just indictments so far) at the NYMEX are running a scam and they have NO INTENTION WHATSOEVER of accepting delivery of even 1/10th of the 367M barrels they had as open contracts last week. In fact, Wednesday (June 8) they traded their contracts 454,043 times - isn't that amazing?  It's a 123% daily churn rate!  Of course, it's easy to churn 454M barrels of crude because the only sucker that ends up paying for all those fees is YOU, the end consumer of crude.  All those fees are passed on to you as part of the price of oil.  
Don't forget to thank Uncle Lloyd and Uncle Jamie (who was whining to Uncle Ben about how stopping him from screwing over taxpayers is bad for the economy), when you fill up your tank, as Exxon's CEO Rex Tillerson told us last week, without those speculators, a barrel of oil would be $70. You can see Jamie sweating as President Obama said a Justice Department probe will examine the role of “traders and speculators” in oil markets and how they contribute to high gas prices. “The attorney general’s putting together a team whose job it us to root out any cases of fraud or manipulation in the oil markets that might affect gas prices, and that includes the role of traders and speculators,” Obama said April 21st in Reno, Nevada. “We are going to make sure that no one is taking advantage of American consumers for their own short-term gain.”    
The group, which includes representatives of federal agencies and state attorneys general, will check for fraud, collusion or misrepresentation at the retail and wholesale level, the Justice Department said in a statement last week. The group also will examine investor practices and the role of speculators and index traders in oil futures markets.  One can only hope that Dimon's squeaky wheel will get the grease (prior to having a Government probe shoved up his ass!).   
Goldman Sachs and Morgan Stanley today are the two leading energy trading firms in the United States. Citigroup and JP Morgan Chase are major players and fund numerous hedge funds as well which speculate, and let's not forget the Fabulous and Alleged Koch Brothers (I say "Fabulous and Alleged" because, if you don't, you hear from their attorneys, which is why no one ever says anything about that alleged scam!).  In June 2006, oil traded in futures markets at some $60 a barrel and a Senate investigation estimated that some $25 of that was due to pure financial speculation. That would mean today that at least $40 of more of today’s $101 a barrel price is due to pure hedge fund and financial institution speculation. However, given the unchanged equilibrium in global oil supply and demand over recent months amid the explosive rise in oil futures prices traded on Nymex and ICE exchanges in New York and London, it is more likely that as much as 60% of today oil price, is pure speculation."

AND, if you haven't read The Great American Bubble Machine, you really should, it explains market manipulation since the Great Depression:


"The first thing you need to know about Goldman Sachs is that it's everywhere. The world's most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money. In fact, the history of the recent financial crisis, which doubles as a history of the rapid decline and fall of the suddenly swindled dry American empire, reads like a Who's Who of Goldman Sachs graduates.
By now, most of us know the major players. As George Bush's last Treasury secretary, former Goldman CEO Henry Paulson was the architect of the bailout, a suspiciously self-serving plan to funnel trillions of Your Dollars to a handful of his old friends on Wall Street. Robert Rubin, Bill Clinton's former Treasury secretary, spent 26 years at Goldman before becoming chairman of Citigroup — which in turn got a $300 billion taxpayer bailout from Paulson. There's John Thain, the asshole chief of Merrill Lynch who bought an $87,000 area rug for his office as his company was imploding; a former Goldman banker, Thain enjoyed a multi-billion-dollar handout from Paulson, who used billions in taxpayer funds to help Bank of America rescue Thain's sorry company. And Robert Steel, the former Goldmanite head of Wachovia, scored himself and his fellow executives $225 million in golden-parachute payments as his bank was self-destructing. There's Joshua Bolten, Bush's chief of staff during the bailout, and Mark Patterson, the current Treasury chief of staff, who was a Goldman lobbyist just a year ago, and Ed Liddy, the former Goldman director whom Paulson put in charge of bailed-out insurance giant AIG, which forked over $13 billion to Goldman after Liddy came on board. The heads of the Canadian and Italian national banks are Goldman alums, as is the head of the World Bank, the head of the New York Stock Exchange, the last two heads of the Federal Reserve Bank of New York — which, incidentally, is now in charge of overseeing Goldman — not to mention …"

Oh and there's this:

"Well, thanks to Wikileaks, we now know that when the Bush administration reached out to the Saudis in the summer of '08 to ask them to increase oil production to lower prices, the Saudis responded by saying they were having a hard time finding buyers for their oil as it was, and instead asked the Bush administration to rein in Wall Street speculators.

According to the McClatchy report, the Wiki cables show that Saudi ministers repeatedly told Bush administration officials that increasing production might be counterproductive.

The cables show that at the height of the bubble, in May 2008, U.S. officials met in Riyadh with the Saudi assistant petroleum minister, Prince Abdulazziz bin Salman bin Abdulaziz al Saud, who told the U.S. he was "extremely worried" that high prices would destroy the demand for crude.

"Aramco is trying to sell more, but frankly there are no buyers," he reportedly said, referring to the Saudi state oil company. "We are discounting buyers."

The issue here, which I covered somewhat in Griftopia and in "The Great American Bubble Machine," revolves around the influx of speculative money into the commodities markets. Because of various changes to the way commodities were traded -- including a series of semi-secret exemptions handed out to commodities speculators, allowing companies like Goldman Sachs to popularize commodities speculation -- there was, by the summer of 2008, a cascade of investor money pouring into commodities, mostly all betting on a rise of commodity prices. Much of this might have been due to money flowing out of mortgages and into the "safe" haven of commodities, with exploding energy prices being an unwelcome side effect. While there was less than $20 billion of speculative activity in commodities in the early 2000s, by 2008 that number had jumped up to well over $200 billion, with virtually all that money being "long" money, i.e. bets on a rise in prices. All of that new money turned into a battering ram pushing prices through the roof. We are seeing the same phenomenon this year.

The Wiki documents show that the Saudis had long ago concluded that this increased investor flow was a threat to disrupt the markets. An embassy cable from 2007 recounted a meeting U.S. officials had with Yasser Mufti, an Aramco planner. "The Saudi analysts indicated a link between higher oil prices and the influx of investor funds into the oil markets," it read.

The cables also show that the Saudis urged the Americans to enact reforms to rein in Wall Street, calling for speculative limits and other changes. It also showed that some Saudi officials believed that speculation added as much as $40 to the oil price during the height of the bubble."

The reality of the world we live in:

2 comments:

  1. Thank you so much for posting this. I am trying to learn more about the specific mechanisms traders use to manipulate markets. This is a veiled world and it is little wonder there is no oversight. We the people, literally, know almost nothing about how we are being screwed or by whom. "Grab the lube boys, or not, he's back for more."

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