{"id":4292,"date":"2011-05-25T08:07:08","date_gmt":"2011-05-25T14:07:08","guid":{"rendered":"http:\/\/www.jasonapollovoss.local\/?p=4292"},"modified":"2018-09-21T02:06:15","modified_gmt":"2018-09-21T06:06:15","slug":"oil-prices-are-manipulated-by-speculator","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2011\/05\/25\/oil-prices-are-manipulated-by-speculator\/","title":{"rendered":"Oil Prices Are Manipulated by Speculators"},"content":{"rendered":"<p><span style=\"font-size: 16px;\">U.S. commodities regulators have brought a civil law suit against a small group of oil speculators who are believed to have manipulated oil markets in early 2008 and netted gains of $50 million.\u00a0 Here we are talking about only 2 traders and 3 trading firms!<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Specifically the culprits are:<\/span><\/p>\n<ul>\n<li><span style=\"font-size: 16px;\">James T. Dyer, Australia<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Nicholas J. Wildgoose, United States<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Parnon Energy, United States<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Arcadia Petroleum, United Kingdom<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Arcadia Energy, Switzerland<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size: 16px;\">These five entities are thought to have raised oil prices, and consequently, oil prices for every single global consumer.\u00a0 These very few speculators raised oil prices above $100\/barrel resulting in a cost to everyone else , likely in the billions of dollars.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Here&#8217;s how these (likely) bastards did it:<\/span><\/p>\n<ol>\n<li><span style=\"font-size: 16px;\">In January 2008 the speculators built up gigantic positions in oil futures contracts on markets in New York and London<\/span><\/li>\n<li><span style=\"font-size: 16px;\">At the same time they bought 4.6 million barrels of oil (!) at Cushing, Oklahoma.\u00a0 For those who don&#8217;t know the supply and demand for oil at the Cushing oil depot helps to determine the very important benchmark price of oil known as West Texas Intermediate.\u00a0 The 4.6 million barrels of oil was approximately 2\/3 of the available excess supply at Cushing at the time.\u00a0 It&#8217;s also important to note that they had no viable commercial reason for buying the oil.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Because their buying of so much of the oil at Cushing, the rest of the oil speculators in the market thought that oil supplies were unusually tight.\u00a0 What happens when supplies are tight in the face of flat demand?\u00a0 That&#8217;s right, prices rise.\u00a0 Here they rose dramatically.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">When the prices rose that drove up the value of the futures contracts that they had bought.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Then they started to sell their futures contracts in mid-January.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">Then they waited several days and then using futures contracts again, they began to bet that oil prices would fall.\u00a0 Why?<\/span><\/li>\n<li><span style=\"font-size: 16px;\">On January 25, 2008 they sold most of the oil that they had bought at the Cushing depot, flooding the oil markets with cheap oil.\u00a0 Because supply was suddenly higher than everyone thought, prices fell.<\/span><\/li>\n<li><span style=\"font-size: 16px;\">So they made a lot of money on the fall in oil prices, too.<\/span><\/li>\n<\/ol>\n<p><span style=\"font-size: 16px;\">It&#8217;s important to note that this took the coordination of very few people with ill intent at very few organizations will equally ill intent.\u00a0 Most importantly, what it really took was poor trading rules, and opaque commodities markets.\u00a0 Here regulators are not able to truly see into the transactions taking place in the markets, therefore they don&#8217;t really know if true supply and true demand are driving prices, or whether it is just plain old market manipulation.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">This operation also took a huge amount of capital.\u00a0 To have bought 4.6 million barrels of oil when oil prices were approximately $100\/barrel meant that the three firms involved had to have $460 million dollars to deploy.\u00a0 In other words, you and I could not have engaged in this manipulation by combining our bank accounts.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Also, note that the speculators are thought to have made $50 million here, or 10.9% on their capital.\u00a0 That may not sound like much, but they made it over the course of about one month.\u00a0 If you were to annualize that return then the return would have been well over 130%!<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Folks, this is an egregious manipulation of financial markets for the benefit of very few players.\u00a0 This is inherently unfair.\u00a0 It is these kinds of stories that destroy the trust of investors in the markets &#8211; which is ultimately the bedrock that the financial markets rest upon.\u00a0 If buyer doesn&#8217;t trust seller, or seller doesn&#8217;t trust buyer, then no transaction takes place.<\/span><\/p>\n<p><span style=\"font-size: 16px;\">I have said for many years now, including on my blog, that oil prices are manipulated by speculators, not to mention all of the other commodities, too.\u00a0 My knowledge comes from having been a nationally ranked oil analyst by Thomson-Reuters during my career as a research analyst.\u00a0 See the following posts for more information:<\/span><\/p>\n<p><span style=\"font-size: 16px;\">&#8220;<a href=\"https:\/\/jasonapollovoss.com\/web2008\/11\/12\/crudeness\/\" target=\"_blank\" rel=\"noopener\">Crudeness<\/a>&#8221; from 12 November, 2008<\/span><\/p>\n<p><span style=\"font-size: 16px;\">&#8220;<a href=\"https:\/\/jasonapollovoss.com\/web2009\/07\/08\/reining-in-the-commodities-speculators\/\" target=\"_blank\" rel=\"noopener\">Reining in the Commodities Speculators<\/a>&#8221; from 8 July, 2009<\/span><\/p>\n<p><span style=\"font-size: 16px;\">&#8220;<a href=\"https:\/\/jasonapollovoss.com\/web2011\/03\/07\/what-my-intuition-tells-me-now-commodities-trading-rules-are-flawed\/\" target=\"_blank\" rel=\"noopener\">Commodities Trading Rules Are Flawed<\/a>&#8221; from 7 March, 2011<\/span><\/p>\n<p><span style=\"font-size: 16px;\">But finally here today we have convincing proof of what I have been saying for years.\u00a0 Unfortunately, it is difficult to imagine that today&#8217;s accused are the only ones out there manipulating prices.\u00a0 No, instead, an intelligent, thoughtful person must assume that there are other, more sophisticated, more monied manipulators out there.\u00a0 Despicable!<\/span><\/p>\n<p><span style=\"font-size: 16px;\">This is why I am a critic of capitalism, not because I hate capitalism, but because at the heart of our economic system is the proper functioning of markets.\u00a0 Markets where buyer and seller alike are treated respectfully and have equal access to information.\u00a0 Ugh!<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Yours,<\/span><\/p>\n<p><span style=\"font-size: 16px;\">Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>U.S. commodities regulators have brought a civil law suit against a small group of oil speculators who are believed to have manipulated oil markets in early 2008 and netted gains of $50 million.\u00a0 Here we are talking about only 2 traders and 3 trading firms! Specifically the culprits are: James T. Dyer, Australia Nicholas J. [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-4292","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4292","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=4292"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/4292\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=4292"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=4292"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=4292"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}