Probably, 60% current oil price – pure speculation

Old article, но интересная..

The price of crude oil is formed independently of the traditional supply and demand balance. It is controlled by a complex financial market system and four major Anglo-American oil companies.. More 60% today's crude oil prices are pure speculation, promoted by trader banks and hedge funds. Naturally, Convenient Peak Oil Myth has nothing to do with it. The reason is in control over oil and over its price. Why?

Firstly, the international oil exchanges of London and New York play a critical role. Nymex in New York and ICE Futures in London control world base prices, which, in turn, account for most of the freely traded oil volume. They do this with two grades of crude oil futures contracts - North Texas Medium and North Sea Brent..

The third more or less new oil exchange Dubai Mercantile Exchange or DME (Dubai Trade Exchange), dubai crude oil trader, is more or less a subsidiary of Nymex, in which Nymex President James Newsom sits on the board of directors, and most key positions are held by British and American citizens.

Brent is used sporadically and in long-term contracts to estimate the amount of crude oil, produced in the world oil markets every day. The price of Brent oil is published in Platt’s, a private publication of the oil industry.. Major oil producers, including Russia and Nigeria, use the price of Brent oil as the base price for the crude oil they produce. Brent - Master Crude Blend, sold in the European market and partly in Asia.

North Texas Medium Oil has historically made up the majority of the U.S. oil consumer basket. It is not only used as the basis for American oil futures, but also the basis for the base price for US manufacturers.

All of this is legal and wonderful. But the process of formation of today's oil prices is not transparent and is regulated by the main banks., oil workers, such as Goldman Sachs or Morgan Stanley, who know, who buys, and who sells oil futures or derivatives, and set the physical prices of oil in this strange new world “oil on paper”.

The development of unregulated international derivatives trading in oil futures over the past decade has created conditions for a speculative oil price bubble..

Along with the withdrawal of oil futures trading on the two main exchanges in London and New York, OPEC lost control over oil prices, which the, respectively, moved to Wall Street. This is a classic case when “the tail controls the dog”.

In June 2006 the Senate report was published “The Role of Market Speculation in Increasing Oil and Gas Prices”, in which it was said: “Obviously, that a large amount of speculation in the market leads to a significant increase in prices”.

The Senate Committee reported that, what constitutes a loophole in the US government's oil derivatives rules, which is so vast, that you can put anything through it. That, which allowed oil prices to jump over the roof.

The report emphasized that, that the Commodity Futures Trading Commission, financial futures regulator, received a mandate from Congress, which guaranteed, that prices in the futures markets reflect the rules of supply and demand, not manipulation or excessive speculation. The U.S. Mercantile Exchange Act says: “Excessive speculation with any commodities on futures contracts for the purchase / sale of such commodities is the cause of sudden or unreasonable fluctuations or unwanted changes in prices for these commodities, which has an undesirable effect on domestic trade in these goods”.

Besides, The Commodity Exchange Act is regulated by the Commodity Futures Trading Commission for the purpose of setting restrictions on trading “if the Commission considers it necessary to reduce, eliminate or prevent such influence”. So, where is this Commission now, when we need such restrictions?

Seems, they have hopelessly abandoned their responsibilities to oversee the world's most important raw material - oil.

The US Senate report said:

“Until recently, US energy futures were traded exclusively on regulated exchanges in the US, such as NYMEX, which are overseen by the Commodity Futures Trading Commission, whose actions include continuous monitoring to establish facts and prevent fraud or price manipulation. However, in recent years, there has been a steady increase in contract trading., which look and structure like futures contracts, but which, Nevertheless, traded in unregulated over-the-counter electronic markets. Due to their similarity to futures contracts, they are often referred to as “such as futures”.

Significant difference between futures contracts and “contracts such as futures” is that, that the latter are sold in unregulated markets, while futures are traded in regulated markets. Trade in goods in the field of energy resources, carried out by large companies in electronic OTC trading, removed from the control of the Commodity Futures Trading Commission by the condition, was introduced at the request of Enron and other major energy traders into the Commodity Futures Modernization Act from 2000 of the year, adopted at the 106th Meeting of the Congress.

Market control interference was significant. From NYMEX traders, for example, required to keep records of all trades and send reports of major trades to the Commodity Futures Trading Commission. These large trade reports with daily price and volume data are the primary tools of the Commodity Futures Trading Commission to determine the extent of speculation., preventing and combating price manipulation. Commodity Futures Trading Commission Chairman Ruben Jeffrey recently said: “Systemic information on large trades is the cornerstone of our supervision program and allows us to determine positions, which can be used by one or more traders for manipulation purposes”.

As opposed to trading, held at NYMEX, traders in unregulated electronic OTC markets are not required to maintain records or submit reports of large trades to the Commodity Futures Trading Commission, and this bidding is an attempt to get away from the constant supervision of the Commission. As opposed to trading, held on regulated futures exchanges, there is no limit on the number of contracts, and a speculator can hold onto unregulated electronic OTC trading, without resorting to monitoring the trading of the exchange itself, and not reporting on the number of external contracts (“open interest”) at the end of every day.

Then in January 2006 of the year, чтобы окончательно убедиться, that the path is open for potential market manipulation of the oil price, Bush administration's Commodity Futures Trading Commission gives Intercontinental Exchange clearance (ICE) (Межконтинентальная биржа), leading operator of electronic trading in energy resources, use their US terminals to trade US crude oil futures on the ICE London Futures Exchange.

Prior to that, only European energy resources were traded on the ICE futures exchange in London., crude oil Brent and natural gas from the UK. As a UK futures exchange, this exchange is exclusively regulated by the UK Financial Conduct Authority. IN 1999 The London Stock Exchange received permission from the US Commodity Futures Trading Commission to set up computer terminals in the US, so that traders from New York and other US cities can trade European energy resources on the ICE exchange.

In January 2006 of the year ICE London began trading North Texas Medium crude oil futures (Further – WTI), that category of crude oil, which is mined and distributed in the USA. ICE also notified the Commodity Futures Trading Commission, about that, that US traders will be allowed to use US ICE terminals to trade new WTI contracts on the ICE London Futures Exchange. ICE has also allowed U.S. traders to trade American gasoline and burning oil futures on the ICE London Futures Exchange.

Despite, that US traders use US trading terminals to sell US oil, gasoline and burning oil futures contracts, The Commodity Futures Trading Commission does not recognize US jurisdiction when trading these contracts.

People in the USA, who want to sell energy resources to the USA (crude oil, gasoline and burning oil futures), may spiral out of control of the US market or fail to comply with trading reporting requirements by transferring trading from NYMEX in New York to the ICE Futures Exchange in London.

Isn't that a subtle move? US Government Energy Futures Regulator, Комиссия по торговле товарными фьючерсами, paved the way for unregulated and opaque speculation in oil futures. Maybe, the reason for this was also that, that the current CEO of NYMEX, James News, who also sits on the board of directors of the dubai exchange, is the former Chairman of the Commodity Futures Trading Commission. In Washington, the doors are open to both government, and for private interests.

Looking at the price of Brent and WTI futures since January 2006 of the year, it is not hard to see the correlations between skyrocketing oil prices and unregulated trading in oil futures in the US markets. Besides, worth paying attention to, that the ICE exchange in London is owned by an American company, headquartered in Atlanta, Georgia, and controlled from there.

In January 2006 of the year, when the Commodity Futures Trading Commission made an exception for ICE, oil prices were in the range 59-60 Doll. per barrel. Now, after just two years, we see the price in 120 Doll. per barrel and stable growth. And this is not an OPEC problem, this is a problem of price regulation by the US government, detrimental.

With no daily trading reports on ICE and major energy deals, it is impossible to establish the fact of price manipulation and to influence it in any way. As stated in the Senate report: “The Commodity Futures Trading Commission's ability to detect and eliminate price manipulation suffers from a lack of information, because traders in electronic markets and the London exchange ICE have already refused to comply with the reporting requirements of the Commodity Futures Trading Commission. Trader reports on large transactions are also needed to analyze the impact of speculation on energy prices.”.

The report also says, what “ICE documentation and US Securities and Exchange Commission, other evidence shows, that electronic exchange without an intermediary performs the function of price discovery (And, respectively, affects energy prices in the United States) in the energy cash market, traded on this exchange.

Large financial institutions are also participating in the energy price race, hedge funds, pension funds and other investors, who invest billions of dollars in energy in order to play on price changes. Most of this additional investment does not come from producers or consumers of these resources., but from speculators, playing on price changes. The Commodity Futures Trading Commission designates a speculator as a person, which “does not produce or use goods, but risks his own funds, trading futures on a given commodity, hoping to profit from changes in the price of this product”.

Large purchases of crude oil futures by speculators drive up demand for oil and drive up its price, as well as increasing demand for contracts for the delivery of a physical barrel today inflate the price of oil in the spot market. According to the laws of the market, the demand for a barrel of oil, which is the result of the purchase of a futures contract by a speculator, just as real, like the demand for a barrel of oil, which is the result of the purchase of a futures contract by a refinery or other consumer of fuel.

Goldman Sachs and Morgan Stanley are currently the two leading energy sales firms in the United States.. Citigroup and JP Morgan Chase are major players and speculators and fund a large number of hedge funds.

In June 2006 of the year oil was sold on the futures markets for 60 Doll. per barrel, and Senate research has proven, what 25 Doll. of which - pure speculation. One of the analysts in August 2005 years said, that the oil price should be within 25 Doll. per barrel, and certainly not 60 Dollars.

It means, what, at least, 50-60 Doll. or even more from today's 115 Doll. per barrel - pure speculation of hedge funds and other financial institutions. but, the persistent global equilibrium between supply and demand over the past few months amid rising oil futures prices, traded on the Nymex and ICE exchanges in New York and London, talks about, what more 60% oil prices - pure speculation. Nobody officially knows about it except the largest banks., working in the oil trade in New York and London, but they won't say anything.

Buying more and more futures contracts and pushing futures prices higher, speculators provide financial incentives for oil companies to buy more oil and storage tanks. Oil refineries are buying more oil today, even for the price 115 Doll. per barrel, because the future price will be higher.

As a result, crude oil reserves have increased significantly over the past two years., and US crude oil reserves are now the largest in eight years. A large influx of speculative investments in oil futures has led to, that even with a large supply of crude oil on the market, we also have high prices.

Obviously, what, geopolitical, economic and natural factors do not explain the rise in energy prices, especially when comparing real supply and demand. And although demand has grown significantly in recent years, proposals are also missing.

Over the past couple of years, global crude oil production has grown along with increased demand; actually, according to the US Department of Energy during this period, global supply exceeded global demand. The US Department of Energy Information Center recently predicted, that over the next few years the supply will increase and 2010 year will reach production in 3-5 миллионов баррелей в день, significantly increasing excess capacity.

Speculative strategy, which negatively affected the US economy and collapsed the dollar, Is it necessary for speculators and conventional investment funds in the midst of the scourge of securitization in the United States to obtain increasingly profitable investments and seize futures positions in the short-term sale of the dollar and long-term oil.

For large American and European pension funds or banks, the desire to make a profit has led to a collapse in earnings since August. 2007 years and the real estate crisis in the United States, as oil is the best way to get large speculative profits. Фоном, which keeps the oil price bubble, are riots in the Middle East, in Sudan, in Venezuela and Pakistan and strong oil demand in China and much of the world outside the US. Speculators trade on rumors.

In its turn, as soon as major oil companies and refineries in North America and Europe began stockpiling oil, deliveries seem to have an even tighter credit backdrop to support existing prices.

As the OTC and London ICE energy markets are unregulated, there are no accurate and reliable indicators, what is the total dollar amount spent on recent investments in energy supplies, but estimates are consistently in the tens of billions of dollars.

The growing speculative interest is also reflected in the growing popularity of commodity index funds., which are foundations, whose prices are linked to the prices of a basket of futures for various commodities. Goldman Sachs evaluates, what pension funds and other funds invest in general 85 billion dollars in commodity index funds, and these investments have their own index, Goldman Sachs Commodity Index (GSCI), which has tripled over the past few years. Worth noticing, that the US Treasury Secretary, Henry Paulson was formerly chairman of the board of directors of Goldman Sachs.

As the calculations in the previous part show, at least, 60% из сегодняшних 128 Doll. per barrel of crude oil, are the result of unregulated futures speculation by hedge funds, banks and financial groups, using the ICE London Futures Exchange, NYMEX Futures Exchange and uncontrolled interbank or OTC trading to avoid audits. Government Commodity Futures Trading Commission margin rules allow speculators to buy crude oil futures contracts on Nymex, by price 6% from the real value of the contract. At today's price 128 Doll. per barrel, it means, what trader futures only pays 8 Doll. for each barrel. He saves 120 Doll. Это соотношение 16 to 1 helps to inflate prices to unrealistic levels and shift bank losses to customers and carry other disasters around the world.

Duck “Peak oil production” (main argument, at which oil production has reached the point, when more than half of all oil reserves have already been used, and the world is already saying goodbye to cheap oil and its abundance) resolves this price cheat, which began with the invasion of Iraq in 2003 year with the help of major banks, oil traders and major players in the oil sector. Washington, as always, tries to shift the blame to OPEC producers. Crude oil supply is not the problem. Vice versa, there is an oversupply on the market now. But the price goes up. Why? The problem lies in the deliberate policy of the US government, which permits unregulated manipulation of oil prices.

Chief strategist of one of the leading oil banks, David Kelly of J.P.. Morgan Funds recently said in an interview with the Washington Post: “Need to understand, that the growth in oil consumption in the world is not so strong”.

One of the stories, which is actively used by speculators, - a statement that, that China's oil imports are spiraling out of control and thus affect the balance of supply and demand. However, the facts do not support the thesis about the increase in China's demand for oil..

U.S. Department of Energy Information Center (EIA) in its latest monthly report “Short-term forecast for the energy sector” talks about, that the demand for oil in the United States is 2008 year will decrease to 190 thousand. barrels per day. This is due to the deepening economic downturn. Oil consumption in China, according to the same report, can not be called sharply increasing, the increase this year will be only 400 thousand. barrels per day. This is little sensation, hyped by the media about China's rapidly growing oil consumption. In the last year, China imported 3,2 миллиона баррелей в день, and the total consumption was about 7 миллионов баррелей в день. For comparison, the United States consumes about 20,7 миллионов баррелей в день.

This means, that the main consumer of oil is the United States, they are the main supplier of demand for the oil market. China is, which consumes only a third of US consumption, cannot have a serious impact on the overall growth of world oil demand - the daily oil consumption in the world is 84 миллиона баррелей в день. And it turns out that the increase in oil consumption by China is less than half a percent of the total oil consumption..

Organization of the Petroleum Exporting Countries (OPEK) in his forecast for 2008 the year left the growth in oil demand unchanged, namely 1,2 миллиона баррелей в день, considering both the decline in economic growth in the industrial world and the growth in consumption in developing countries. OPEC predicts, that global oil demand in 2008 year will average 87 миллионов баррелей в день, which is not very different from previous indicators. Demand in China, in the Middle East, in India and Latin America will be slightly higher, but in North America and Europe, demand will decline.

The world's top oil consumers are facing declining demand, снижением, which could have a negative impact on the real estate sector and have other economic consequences in the context of the securitization crisis in the United States. The price in conventional open and transparent markets would already be falling, but did not rise. It is not the oil supply crisis that determines, how oil is valued in the world today.

But it's not just the lack of a supply crisis that doesn't justify such an oil bubble.. There are also new giant deposits., which begin to function and within 2008 years will significantly increase the supply on the oil market.

Saudi Arabia, the world's largest oil producer, has plans to increase drilling by a third and investments by 40%. Saudi Arabia plan, the implementation of which is designed for 2009-2013 gg., As expected, will be approved by the board of directors of the company and the Ministry of Petroleum this month (in May 2008 - approx. Transl.). The Kingdom plans to increase production on average to 50 billion barrels of oil per year to meet growing demand in Asia and emerging markets. Kingdom plans to mine by next year 12,5 миллионов баррелей нефти в день, What's on 11% higher than the current 11,3 миллионов баррелей.

In April of this year, the Khursanya field in Saudi Arabia began to operate, and in the near future it will bring 500 thousand. barrels of Arabian Light oil per day. Just like the other Saudi field, Khurais, which is the largest in Saudi Arabia, and together, both of these fields will be able to increase oil production in Saudi Arabia with 11,3 миллиона баррелей в день до 12,5 to 2009 year. Khurais will add to Saudi Arabia's exports 1,3 million barrels per day of high quality Arab crude oil.

Brazilian Petrobras says, that according to preliminary estimates, the oil reserves in the Tupi field are as large or even larger than the oil reserves in the North Sea. Petrobras claims, that the Tupi deposit contains 8 billion barrels of industrial light oil. After the start of development in a few years, it is expected, that this deposit will lead Brazil to “top ten” largest oil producers, such as Nigeria and Venezuela.

In the USA itself, besides hearing about, that oil companies are sitting in large new fields in Alaska, fearing, that prices will soon fall due to oversupply, US Geological Survey released a report, which confirmed the presence of new oil fields in the Baken, which stretches along North Dakota, Montana and southeastern Saskatchewan. Oil reserves in the Baken are estimated at 3,65 миллиардов баррелей.

And these are just some of the confirmations about the exploration and development of new deposits.. Iraq, on which the Anglo-American Big Four was drooling, trying to get his paw on unexplored deposits, has the world's second largest oil reserves after Saudi Arabia. In many countries of the world, oil is being searched for. При ценах 60 Doll. per barrel it is already becoming economically profitable. the main problem, the Big Four is not looking for a replacement for oil, and control over the world's oil fields to support today's unrealistic prices. In this they are assisted by banks from Wall Street and two major oil exchanges - NYMEX and London ICE.

The proof is growing, that the current speculative oil price bubble will burst soon.

Late last month in Dallas, Texas, American Association of Petroleum Geologists Held Annual Conference, which was attended by all the key figures in the field of oil production and sale. По имеющимся сведениям, well-known players in the oil field have come to an agreement, what: “oil prices will fall soon, and for natural gas, a long-term rise in prices is predicted”.

A few days earlier, Wall Street investment bank Lehman Brothers announced, that the current oil price bubble is about to burst. The bank's chief oil strategist Michael Waldron in an interview with the British Daily Telegraph 24 April said: “Oil supply outstrips growth. Stocks have been growing since the beginning of the year”.

In the United States, oil reserves are steadily growing and, if in April stocks were 12 миллионов баррелей, then in the monthly EIA report from 7 May their size is already equal to 33 миллионам баррелей. At the same time, the gasoline report in the US fuel report from MasterCard from 7 May shows, that the demand for gasoline fell by 5,8%. And refineries have seriously reduced production, trying to adjust to the decline in gasoline demand. They are now working for 85% мощности, while a year ago, production volumes were 89%, but in general, this season is the norm for loading on 95%. Refineries are now trying to reduce gasoline stocks in order to raise gasoline prices. “This is the economy, jerk!” – to rephrase Bill Clinton's taunt at the 1992 year over Bush Sr.. It's called a downturn.

The report from 8 May British company Oil Movements, which tracks oil shipments around the world, shows, что нефти, transported by sea, still a lot. Almost all categories of maritime transport are involved more, нежели год назад. The report noted, what “most of the oil reserves in the west, created in the last year, came from offshore, out of supervision”. Some informed sources say, that the global oil industry, from the Big Four activities and reserves to the location of the tanker or storage facility, is the most secret industry in the world, except perhaps for the drug trade.

В противоположность тому, what happened twenty years ago, oil price today, determined behind closed doors in the trading rooms of giant financial institutions, such as Goldman Sachs, Morgan Stanley, JP Morgan Chase, Citigroup, Deutsche Bank and UBS. Key player is ICE London Futures Exchange (former International Fuel Exchange). ICE Exchange is a subsidiary of the Atlanta-based International Commodity Exchange, Georgia. ICE Atlanta was co-founded by Goldman Sachs, which also launched the world's most widely used commodity price index - GSCI, which is a counterweight to oil prices.

As I mentioned earlier, ICE was under investigation in Congress. She was mentioned in the Senate's Permanent Subcommittee on Investigations staff report.’ 27 June 2006 year and at the hearings of the Congress Committee on Energy and Trade in December 2007 of the year, who investigated unregulated energy futures trading. Both studies concluded, that the rise in energy prices to 128 Doll. And, maybe, even higher driven by billion dollar oil futures contracts, hosted on ICE. Since the Bush administration in January 2006 provided a convenient exception to the rule, trading in US energy futures on the ICE exchange is not regulated by the Commodity Futures Trading Commission, even if oil contracts are sold at ICE US subsidiaries. And at the request of Enron, the Commodity Futures Trading Commission in 2000 removed all OTC oil futures trading from its supervision.

So it's not surprising to see in the post 6 May, what Goldman Sachs announces, that oil may actually be on the verge of another “super jump”, maybe, even higher, how $200 per barrel over the next 6 – 24 Months. This title “$ 200 per barrel!” became the main news about oil for the next two days. How many gullible lemmings ran to part with their money?

Arjdun Murti, Energy Strategist Goldman Sachs, blames it all on, what does he call “impetuous” growth in demand in China and the Middle East combined with its approval, that the Middle East is already close to its maximum oil production. The Peak Oil Myth is helping Wall Street again. The degree of unwarranted hype is reminiscent of Wall Street's similar self-serving hysteria in 1999-2000 yy. around dot.com or Enron market.

IN 2001 year just before the dot.com crash in NASDAQ some Wall Street firms advertised shares to the gullible public, who quietly got away with their company. Or they promoted questionable stocks for companies, where their subsidiary banks had their financial interests. Shortly speaking, as a result of investigations in Congress later surfaced, that company, interested in a certain financial result, used all means to, to fill your pockets, leaving investors with nothing. Therefore, it makes sense for Congress to be interested in, to get hold of records of the futures positions of Goldman Sachs and a handful of other key players in oil futures, To view, did they invest, hoping for future profits in 200$ per barrel, or not.

Another additional generator of current speculation in oil prices is the margin rule, determining the percentage of cash of a buyer of an oil futures, which should be nested, to put on a rising price (или на падающую, what does it matter). The current NYMEX rules only allow a speculator to deposit 6% of the total value of his futures contract. This means, that a risk-bearing hedge fund or bank is buying futures at a ratio 16 to 1.

We can find tons of plausible arguments, explaining high oil prices: “terrorism insurance premium”; “impetuous” growth in oil demand in China and India; riots in Nigeria; oil pipeline explosion in Iraq; a possible war with Iran ... Well, among other things - the myth of the Peak of oil production. Oil speculator T. Boon Pickens, по имеющимся сведениям, made gigantic profits on oil futures and relied on a convenient myth, that the world is on the cusp of oil production. The banker from Houston did the same., Dick Cheney's friend, Matt Simmons.

In a Senate report in June 2006 of the year “The role of market speculation in raising oil and gas prices” сказано: “Hedge funds have managers, who are real masters in the field of application of theories about the peak of oil production and are able to masterfully regulate supply and demand. Making bold predictions, they stimulate price increases, which in turn stimulates further forecasts”.

Will the Democratic Congress act to reshape lovingly opaque oil markets in an election year and risk the bubble bursting?? 12 May, the Chamber of Energy and Commerce Committee said, what will consider this issue in June. The world is waiting.

A source: wfi.su