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!
