The Global Oil Scam: 50 Times Bigger than Madoff

$2.5 Trillion - That’s the size of the global oil scam.

It’s a number so large that, to put it in perspective, we will now begin measuring the damage done to the global economy in "Madoff Units" ($50Bn rip-offs). $2.5Tn is 50 times the amount of money that Bernie Madoff scammed from investors in his lifetime, but it is less than the monthly excess price the global population is being manipulated into paying for a barrel of oil.

Where is the outrage? Where are the investigations?

Goldman Sachs (GS), Morgan Stanley (MS), BP (BP), Total (TOT), Shell (RDS.A), Deutsche Bank (DB) and Societe Generale (SCGLY.PK) founded the Intercontinental Exchange (ICE) in 2000. ICE is an online commodities and futures marketplace. It is outside the US and operates free from the constraints of US laws. The exchange was set up to facilitate "dark pool" trading in the commodities markets. Billions of dollars are being placed on oil futures contracts at the ICE and the beauty of this scam is that they NEVER take delivery, per se. They just ratchet up the price with leveraged speculation using your TARP money. This year alone they ratcheted up the global cost of oil from $40 to $80 per barrel.

A Congressional investigation into energy trading in 2003 discovered that ICE was being used to facilitate "round-trip" trades. Round-trip trades occur when one firm sells energy to another, and then the second firm simultaneously sells the same amount of energy back to the first company at exactly the same price. No commodity ever changes hands. But when done on an exchange, these transactions send a price signal to the market and they artificially boost revenue for the company. This is nothing more than a massive fraud, pure and simple.

"Traders of the the ICE core membership (GS, MS, BP, DB, RDS.A, GLE & TOT) wouldn’t really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and “squeezing” those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate." - Chris Cook, Former Director of the International Petroleum Exchange, which was bought by ICE.

How widespread are round-trip trades? The Congressional Research Service looked at trading patterns in the energy sector and this is what they reported:

This pattern of trading suggests a market environment in which a significant volume of fictitious trading could have taken place. Yet since most of the trading is unregulated by the government, we have only a slim idea of the illusion being perpetrated in the energy sector.

DMS Energy, when investigated by Congress, admitted that 80 percent of its trades in 2001 were round-trip trades. That means 80 percent of all of their trades that year were bogus trades where no commodity changed hands, and yet the balance sheets reflect added revenue. Remember, these trades are sham deals where nothing was exchanged. Duke Energy (DUK) disclosed that $1.1 billion worth of trades were round-trip since 1999. Roughly two-thirds of these were done on the InterContinental Exchange; that is, the online, nonregulated, nonaudited, nonoversight for manipulation and fraud entity run by banks in this country. That means thousands of subscribers would see false pricing. Under investigation, a lawyer for JPMorgan Chase (JPM) admitted the bank engineered a series of “round-trip” trades with Enron.

You can chart the damage done by Goldman Sachs and their gang of thieves by looking at commodity pricing pre- and post-ICE. Before ICE, commodities followed a more or less normal growth path that matched global GDP and was always limited in price appreciation by the fact that, ultimately, someone had to take delivery of a physical commodity at a set price.

ICE threw that concept out the window and turned commodity trading into a speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn’t need the things that were not produced. And in just 5 years after commencing operations, Goldman Sachs and their partners managed to TRIPLE the price of commodities.

Goldman Sachs Commodity Index funds accounted for $60Bn out of $100Bn of all formula-managed funds in 2007 and investors in the GSCI lost 15% in 2006 while Goldman had a record year. John Dizard, of the Financial Times, calls this process "date rape" by Goldman Sachs as the funds index rolls cost investors 150 basis points of return annually ($9Bn on the Goldman funds) but GS, under the prospectus, is able to "manage our corresponding position," which means that it has to deliver a price at the end of the roll period. If Goldman can cover that obligation at a better price, they will, and GS pockets the difference. This is why we see such wild moves in the days before rollover, since there are billions riding on GS hitting their target every month.

It is not surprising that a commodity scam would be the cornerstone of Goldman Sachs’s strategy. CEO Lloyd Blankfein rose to the top through Goldman’s commodity trading arm J Aron, starting his career at J Aron before Goldman Sachs bought them over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio. According to Chris Cook: "It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates." Cook adds:

It appears to me that what has been occurring in the oil market may have been that – through the intermediation of the likes of J Aron in the Brent complex – long term funds have been lending money to producers – effectively interest-free - and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.

A combination of market hype, the opacity of the Brent Complex and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup, which that company’s management subsequently blamed mainly on Goldman Sachs.

Mike Riess issued a study called "Modern Market Manipulation" in which he describes how GS, MS, DB et al have systematically created an environment that rewards those who manipulate the system, robbing the poor to send the money up they company ladder in exchange for record bonus payouts, which (by design) are the majority of their traders’ salaries:

Before the ‘80’s, there were just us traders. "Rogue" traders arrived on the scene with the large institutional participants, both private and public. Today’s companies and government marketing boards are large enough for senior management to distance itself from controversy, including market manipulation.

In a competitive, amoral environment, middle managers in these mega-organizations have the authority to hijack an institution’s reputation and the financial clout to manipulate the market—and they do. As long as they succeed, they enjoy promotions and perks and, sometimes, the fruits of embezzlement. If the manipulation unravels, the company denies any knowledge and hangs the rogue out to dry. We’ve seen this over and over again, most recently with D’Avila and Codelco, Hamanaka and Sumitomo, Leeson and Barings and Tsuda and Daiwa Bank.

The CFTC’s definition of manipulation is:

• A planned operation that causes or maintains an artificial price
• Unusually large purchases or sales in a short period of time in order to distort prices
• Putting out false information in order to distort prices.

In mid-2008 it was estimated that some $260 billion was invested in the Brent energy markets on the ICE, while the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most. NYMEX trading follows a similar path with 258,000, 1,000-barrel contracts open for December delivery (258M barrels), which were traded 327,000 times yesterday alone yet, at the end of the period, less than 40M barrels of oil will actually be delivered as that is the total capacity at Cushing, Okla. - where NYMEX contract deliveries are settled. Every single one of those traders know it is not even possible for 80% of the contracts they are trading to be fulfilled - it's a joke, but the joke is on you.

Over the course of an average month at the NYMEX, 5 billion barrels of oil will be traded, with a fee collected on every single transaction. That is ultimately passed down to US consumers, yet less than 40M barrels will actually be delivered. That is just 8 tenths of 1 percent of actual demand for the product that is being traded - ie. 99.2% of the oil transaction fees being paid by the American people do nothing more than create fees for the traders and record profits and bonuses for the trading firms.

Index speculators have now stockpiled, via the futures market, the equivalent of 1.1 billion barrels of petroleum, effectively adding eight times as much oil to their own stockpile as the United States has added to the Strategic Petroleum Reserve over the last five years. Today, in many commodities futures markets, they are the single largest force. The huge growth in their demand has gone virtually undetected by classically trained economists who almost never analyze demand in futures markets. As money pours into the markets, two things happen concurrently: The markets expand and prices rise. One particularly troubling aspect of index speculator demand is that it actually increases the more prices increase. This explains the accelerating rate at which commodity futures prices (and actual commodity prices) are increasing.

Before ICE, the average American family spent 7% of their income on food and fuel. Last year, that number topped 20%. That’s 13% of the incomes of every man, woman and child in the United States of America, over $1Tn EVERY SINGLE YEAR, stolen through market manipulation. On a global scale, that number is over $4Tn per year - 80 Madoffs! Why is there no outrage, why are there no investigations? Well, the answer is the same - $4Tn per year buys you a lot of political clout. It pays to have politicians all over the world look the other way while GS and their merry men rob from the poor and give to the rich on such a vast scale that it’s hard to grasp the damage they have done and continue to do to the global economy.

CIBC Chief Economist Jeff Rubin issued a report last year that blames the current recession on high oil prices, saying defaulting mortgages are only a symptom. According to Rubin, these higher oil prices caused Japan and the Eurozone to enter into a recession even before the most recent financial problems hit. Higher oil prices started four of the last five world recessions; we shouldn’t be too surprised if they started this one also:

Oil shocks create global recessions by transferring billions of dollars of income from economies where consumers spend every cent they have, and then some, to economies that sport the highest savings rates in the world. While those petro-dollars may get recycled back to Wall Street by sovereign wealth fund investments, they don’t all get recycled back into world demand. The leakage, as income is transferred to countries with savings rates as high as 50%, is what makes this income transfer far from demand neutral.

There is no shortage of oil. OPEC alone has 6-7 million barrels a day of spare capacity, more than the total disruption of any single country and any two countries other than Saudi Arabia could offset. Additionaly, ICE partners Total and JPM are part of the cartel that is totally skewing the global demand picture by storing 125M barrels of oil in offshore tankers. That’s 15 days of US imports that have been "ordered" but never delivered, so they show up as an extra 1Mbd of global demand, though nobody actually wants them. Land-based storage is also bursting at the seams, with global supplies up to 61 days of total consumption (84Mbd) up from 52 days last year.

That’s 5 billion barrels of oil already out of the ground, in barrels and ready to go AND THEY KEEP MAKING 86M MORE EVERY DAY! Where is the shortage? Mainly, it is media hype pushed by "analysts" at the very firms that profit the most from high oil prices. Goldman Sachs issues bullish opinions on oil and builds large positions in oil, while it is the cartel’s job to hide oil in offshore tankers, and then sell forward all the oil, with futures contracts, locking in the high price. Of course they have their media hounds as well, most notably the Drudge Report. As noted by Goldmansachsrules:

Type in the word "OIL" inside the "Drudge Report" search engine. It returns 1,965 headlines with the word "OIL." Over the last couple years, The Drudge Report has ran 1,965 headlines with the word "OIL." Most of these articles were hosted by the worthless organizations of Yahoo, Breibart, APNews, and Reuters. The Drudge Report just creates the headline, and links it the article hosted by who ever is doing the "hyping."

Search on the word "credit crisis" and you only get 12 archived headlines. The word "bailout" yields only 268. The word "bank" returns only 568. So you have the Drudge Report hyping the oil market, because they bring it up almost 2,000 times. Unlike the "credit crisis" or "Wall Street Bailout" that actual did happen, the oil market and what did/didn’t happen between Israel/Iran is plugged 10 times more!

Of all the 1,965 articles that the Drudge Report ran with the word "OIL" in the title, most were hyping the oil market. The most notorious cases, a few times a week, were hosted by Yahoo, Breibart, and AP News. Most of these articles were plugged with the same paragraph that stated if "Israel were to attack Iran, Iran would retaliate by taking over the straits of Hormuz, the largest pathway for oil and we all know what that would do to the price of oil.

It truly takes a global village of manipulators and their lackeys to pull off a con on the scale of oil, but it’s also the most profitable scam ever perpetrated on the people of this planet, as they take control of a vital resource and then create artificial shortages and drive speculative demand in order to charge you an extra dollar per gallon of gas. You don’t complain because it’s "only" $15-$20 every time you fill up your tank, but that’s what they count on and that’s where you’re wrong - it’s $20 from you and $20 from every single one of your customers once or twice a week, and $20 more your employees need just to get to work. It’s money that could be going into your business instead of a new gold bathtub for a Saudi Prince or a Goldman trader.

Global drivers consume 1.7Bn gallons of gas every single day. That $1 is $50Bn a month, a Madoff per month that is being taken away from you and your business and the non-energy/financial businesses you invest in. Of course we can give up and invest in those sectors (we do) but that doesn’t do much for the global economy and, even as you sit here now, not doing anything, those oil profits have been plowed into the copper and gold markets and now the same Goldman energy cartel is bidding to take over your clean air (through Carbon Credit trading) and your clean water.

Maybe when they are charging you $80 a gallon for water and ten cents a breath you’ll want to do something about it. I think I’ll start right now and you can too! Here are the Email addresses and fax numbers for all of your Senators, Congresspeople and Governors. Send this article to them and let them know you’d like to see an investigation. Take a few minutes of your time to save a few bucks on your next gallon of water!

Editor's note: ICE has a web site www.globalmarketfacts.com that seeks to set the record straight on the exchange and the changes it has made to attempt to rein in problematic trading practices.

Comments

[ryanclarke]

Sir, while I agree 100% with your assertion oil prices are controlled ... or manipulated ... on a short term basis by both big oil and big banks ... I DISAGREE 100% with your assertion that there is no shortage of oil. I'll go as far to say only someone who has absolutely no understanding of world economics or history would say ... "there is no shortage of oil." There is a shortage of oil in the U.S. for a very simple reason. The resource has been "depleted" within U.S. boundaries and even if a huge NEW oil field was found underneath Oklahoma ... cities would have to be destroyed in the process to "dig up the oil." The fact is the "easy oil to extract" which is "easy to make into gasoline" is MOSTLY GONE. By "easy oil to extract" I mean oil which is a few hundred feet ... at the most ... under the ground as well as under a great deal of pressure so that it flows to the surface with little effort. Such oil is LIGHT and pours with ease unlike the gooey syrup the Saudis are currently attempting to extract from beneath the desert within the confines of their country. Such HEAVY oil is extremely expensive to extract ... which is why the LIGHT oil in Saudi land was extracted first. The same goes with the heavy black sludge Chavez owns ... most big oil players have given up on Chavez oil as an "economical" choice of extraction. The fact is what LIGHT oil is left to be extracted is 10,000 feet under the sea ... and if you've ever tried to work on an oil rig in the middle of the Gulf of Mexico in the middle of a hurricane you might understand why extraction costs would be EXPENSIVE. As the U.S. does not currently own the land the Saudis do, nor does the U.S. own the sea the Brazilians do, nor does the U.S. own the land the Russians do ... which is where what remains of the LARGE LIGHT OIL fields which have not been depleted ... those countries can charge whatever they like for the product you need in order to drive in a car to get a sandwich at the 7-11 when you are hungry. In summary, if you don't like the price of oil ... perhaps you should move to Iraq and help them get it out of the ground ... or perhaps you should tell the U.S. tech companies to double or triple the price of computing equipment sent to Russia, Saudi Arabia, etc. to make up for the increase in oil EXTRACTION costs.

2009 Nov 11 01:32 PM

[RSAAKKS]

Very enlightening. I guess that is free market capitalism at its best.

2009 Nov 11 01:36 PM

[slam stocks]

Excellent article to summarize a long held rumour Oil prices are being somewhat secretly controlled by a few operatives. Not surprised that GS and their thieving gang is the likely centre. I also agree with the above comment on the shortage of Oil. The costs includes the risks involved, I mentioned in another article approx. 90% of the world's oil is unavailable, due to political risks or difficult to reach ie. oceans off Brazil or Tar Sands - Canada, hence the higher costs. You combined the controlled higher pricing by these manipulators to newer countries which can now produce difficult to reach oil at a profit; the price will remain high and establish a new new floor level.

2009 Nov 11 01:46 PM

[SeekingTruth]

As far as politics goes , doing nothing can prove to be highly profitable, easy too.
I have more outrage than I can put to this page.

Bill, in the third paragraph : ----- "they artificially boost revenue for the company". WHO is "the company"? I presume you mean ICE, but you could mean that it supports the price of oil for the participating companies, or both.
There is no need for me to write to my senators and reps in my state as they are in league with whatever makes more money for themselves and their real constituents -- the corporations. I've tried it before and have been more than disappointed every time.
Some people come by honesty completely naturally, and some must be forced to practice it- - or else.
You've given us a lot of troubling history and revealed fraudulent practices that have been going on for a long time.
We should at least apply the "Martha Stewart standard" here, i,e., if the wrong doing is at least as bad as hers then they should be prosecuted and sent to jail.
Thanks for this impressive and excellent piece of investigative work.

2009 Nov 11 01:46 PM

[Shaftsinker]

Fantastic article.

ryanclarke you're buying into the exact hype the author is talking about. I work in the industry, and the oil in the oilsands of Canada (2nd largest oil reserves in the world) can be extracted at a cost of $20-$30/barrel. That's paying Canadian taxes and employing Canadian workers.
Don't you dare tell me oil being extracted in the Middle East at a cost of $2/barrel is the reason why oil shot up to $150/barrel.

Secondly, did all of his points go over your head? He's talking about trades that dramatically articially increased the demand for a product. What you're doing is sitting there saying it's alright because there's no connection between demand and the price of oil.

You're a classic example of why we let this go on. The blatantly ignorant and factually devoid peak oil culture has penetrated the mainstream, and consequently when oil was at $150 you and peopel like you were saying "I knew this was going to happen" as opposed to "What the ****!"

2009 Nov 11 01:53 PM

[OilFinder]

You are correct, Phillip, in that there is no shortage of oil, nor will there be any shortages of oil for the foreseeable future. Read my last post here:
seekingalpha.com/artic...

2009 Nov 11 01:54 PM

[Jetliner]

Good article, what is not stated is that if Davis' list of culprits were removed a different list would take their place. Laissez- faire capitalism is a sham and is a cover for those who will stop at no ends to enrich themselves. Last any of us knew "greed" still existed in all societies, politics and economies. Since recorded history began governments have been empowered to legitimatize greed. The real question is "Is the government one of all the people or of just a "privileged" few." Excuse my skepticism , but when all the people pay for a few to be wealthy that is an injustice!

2009 Nov 11 01:56 PM

[ilovesum]

So when does the govt or people wake up and do something about it?
Why are we controlled by the needs of the few rich while the majority are poor and essentially slaves ? Time for big change .

2009 Nov 11 02:06 PM

[yomamma]

Great article. Specifics on this "crime" are appearing more frequently since last year. You never just find one cockroach. Lets go hunting and spend that extra $20 a tank on renewable resources!

2009 Nov 11 02:17 PM

[Denise Hubbard]

The SEC may be finally doing something proactive about market manipulation as a whole. Just read SEC requested a copy of STOCK SHOCK--new movie about market manipulation and naked short selling of Sirius XM stock (among others). Amazon has the movie on DVD.

2009 Nov 11 02:20 PM

[Mark Anthony]

Philips:

I disagree with most of what you say. Yes there is speculation and deliberate manipulation in the commodities futures market. But NO, there is no scam here. It's part of market volatility as a result of free market principles at work. Some speculators make money but there are also some speculators lose money at the same time.

Peak oil is real. Oil price is going to go much much higher. If you think oil price has been bumped up artificially and it is going to crash down, well, you are WELCOME to speculate the opposite way and enter a short position against the oil bull speculators. You might even make money if you speculate right on the bearish side.

Both you and I agree with one thing, the speculators in the commodities futures market never actually take delivery so there is never actual physical demand.

But exactly because no physical commodities are involved, speculators have NOT looted the consumers of physical commodities, they have merely looted each other's pocket. It's either bull speculators take money out of bear speculator's pocket, or vise versa. It's a gamble between two groups of speculators, One group write future contracts they they know they could never deliver the physical stuff, another group purchase future contracts that they know they will never ask for delivery of the nasty substances. It's a zero sum-gamble and fist fight between speculators and speculators.

Let me put this way. If I today pay $6 a gallon gasoline versus $3. As a consumer I paid extra. But I bought the physical thing. My money did NOT pay into Goldman Saches's pocket, as they did not sell gasoline to me. My money is paid to the producers who produced and supplied that gallon of gasoline to me.

The only time I paid money to the Wall Street, is when they actually HAVE interacted with the physical commodities. If Goldman Saches has hired some oil tankers to stockpile oil at $30 and then sell them at $80. I pay the price for $80 oil and the original oil producer get paid only $30, and Goldman Saches, as a middle man, get pockets the difference.

If they have not hires a oil tankers. Then the oil transaction is directly between the oil producers and me, and gain and loss is between me the consumer and the producers, not a penny of that money enters Goldman Saches' pocket. If they pocke some money, it's because they bet bullish on the paper futures market, and you, Philips Davis, betted bearish and you lose your betting money to Goldman Saches.

Please read here why the only sensible way of investing (versus gambling) in commodities, is to physically HOLD the stuff:
seekingalpha.com/autho...

If you don't hold it, you don't have it.

When lots of money chases a narrow market of commodities, the end result is extreme volatility. But unless physical possession is taken, it does not affect physical demand and does not affect long term prices.

For example you can "invest" a billion dollars or a trillion dollars in the global palladium market. But there are only less than a million ounces available for investors to buy. Only those who bought the physical ounces will rip long term profit at the end.
seekingalpha.com/autho...

2009 Nov 11 02:20 PM

[GigMaster]

I realy hate it when some ignoramus labels the kind of activity described in the article as capitalism. This is not capitalism. It is fraud and theft enabled by our corrupt politicians. The same way the sub-prime scam was fraud and theft.
Capitalism and truly free markets have allowed more people to live in freedom and comfort than any other system ever previously devised. To condemn capitalism on the basis of these thefts is total ignorance that plays right into the politicians hands. They use your ignorance to grab even more power to "regulate" in favor of their friends.
By definition, a falsley manipulated market is not a free market. WISE UP!!


On Nov 11 01:36 PM RSAAKKS wrote:

> Very enlightening. I guess that is free market capitalism at its
> best.

2009 Nov 11 02:20 PM

[Mark Anthony]

Philip:

Further, on the issue of Wall Street bankers stockpiled 125M barrels of oil you think that skewed the global oil supply and demand. The opposite is true. They did not skew the true supply/demand, they help to restore the true supply/demand picture.

How could you blame they for stockpiling 125M barrel of oil and seek profit from it. Sure no one wants that 125M at $30 a barrel. So they buy since no one else wants it, what's wrong with it? And later, the same oil that no one wants at $30, now some one wants to have at $80, so they sell, what is wrong with it? It's free market principle at work. Thanks to the 125M hoarding, the price of oil did not drop below $30, and because of availability of this 125M precious hoarded up, there is now extra supply so that oil has not raise to more than $80 yet.

It's free market principle at work. Buy when no one wants it, and sell when every one wants it. That's how things work and how one can make money, LEGALLY. The world is an idiot that it does not want that 125M at $30, and then wanted to pay $80 a couple of month later. Some one has to make that money and restore some sanity.

2009 Nov 11 02:44 PM

[Shaftsinker]

While you are making good points, you have not addressed the issue of the round trip trades the author was discussing, which I believe was the focal point of his argument that consumers are being scammed. From my understanding it's not at all pure futures speculation where there is a winner and a loser like you were rebutting earlier.

Yes it makes sense to stockpile oil at $30 and sell it at $80, but it becomes a scam when you inflate the price to $80 by participating in a series of neutral trades that put on the facade of activity in the oil trading market.


On Nov 11 02:44 PM Mark Anthony wrote:

> Philip:
>
> Further, on the issue of Wall Street bankers stockpiled 125M barrels
> of oil you think that skewed the global oil supply and demand. The
> opposite is true. They did not skew the true supply/demand, they
> help to restore the true supply/demand picture.
>
> How could you blame they for stockpiling 125M barrel of oil and seek
> profit from it. Sure no one wants that 125M at $30 a barrel. So they
> buy since no one else wants it, what's wrong with it? And later,
> the same oil that no one wants at $30, now some one wants to have
> at $80, so they sell, what is wrong with it? It's free market principle
> at work. Thanks to the 125M hoarding, the price of oil did not drop
> below $30, and because of availability of this 125M precious hoarded
> up, there is now extra supply so that oil has not raise to more than
> $80 yet.
>
> It's free market principle at work. Buy when no one wants it, and
> sell when every one wants it. That's how things work and how one
> can make money, LEGALLY. The world is an idiot that it does not want
> that 125M at $30, and then wanted to pay $80 a couple of month later.
> Some one has to make that money and restore some sanity.

2009 Nov 11 03:00 PM

[stockferret]

According to Adam Smith, in a free market each participant will try to maximize self-interest, and the interaction of market participants, leading to exchange of goods and services, enables each participant to be better of than when simply producing for himself/herself. He further said that in a free market, no regulation of any type would be needed to ensure that the mutually beneficial exchange of goods and services took place, since this "invisible hand" would guide market participants to trade in the most mutually beneficial manner.

How is that working out for ya?

2009 Nov 11 03:28 PM

[OptionWill]

Can't agree more with this commentary

2009 Nov 11 03:33 PM

[Mark Anthony]

I guess to be fair, the consumers should also send a big Thank You note to Goldman Saches for knocking price down to as low as $30 per barrel, saved consumers quite a bit of money during that few brief months.

No one thanks Wall Street speculators for pushing oil down to $30 and save every one money. Now the prie is pushed to $80, I hear no producers thank Goldman Saches for letting them make more profits. But when the volatility moves against you, every one blames on the speculator.

The fact of the matter is the "round trip trades" does not generate net commodity demands, and hence does NOT change the supply/demand/price fundamentals in the long run. It generate short term volatilities. Volatility works on both ways, it could price too high and could push price too low. It forces consumers to pay more at a time and pay less at another time. Long term, it cancels out. I as a consumer, will accept the volatility and I would not complain when I have to pay more, nor would I need to thank any one when I end up paying less than I expected.

It's free market principles at work.

On Nov 11 03:00 PM Shaftsinker wrote:

> While you are making good points, you have not addressed the issue
> of the round trip trades the author was discussing, which I believe
> was the focal point of his argument that consumers are being scammed.
> From my understanding it's not at all pure futures speculation where
> there is a winner and a loser like you were rebutting earlier.<br/>
>
> Yes it makes sense to stockpile oil at $30 and sell it at $80, but
> it becomes a scam when you inflate the price to $80 by participating
> in a series of neutral trades that put on the facade of activity
> in the oil trading market.

2009 Nov 11 03:47 PM

[OptionWill]

If you are an investor and you don't see this as "painting the tape",
I bet you have lost alot on your portfolios out there.

"Round Trip" = Painting the tape

In racing, you cheat counting on others to also cheat, so no one is blackballed by the larger group for calling you out. They all win. They all get paid, and the guys playing fair can't keep up and can't stay solvent to keep going. AND always wonder why they could never catch the lead pack...

2009 Nov 11 04:09 PM

[john s. gordon]

after reading the above concerning secret round-trip trading in offshore exchanges to maximize revenue for those who control the futures markets, it is easy to see the potential for abuse if cap & trade (CO2) legislation ever becomes law. it will make the enron scam look like chump change.
> jack

2009 Nov 11 04:23 PM

[Dave5577]

Oil demand longterm is increasing. Exploration and development/production costs longterm are increasing. Therefore oil prices should increase longterm. Many spikes and pull backs can occur along the way to much higher oil prices longterm. Quit denying the obvious fact that longterm we are looking at much higher oil prices. If we manufacture government market control over something as basic as oil trading and hence oil production/development we will generate much worse shortages of the product than we would have otherwise. It would be a terrible mistake. But some people want to control the availability of hydrocarbons to make artifical shortages. They will have their way and all will suffer for it horribly. Some big guys with government connections will make alot of dough. Keep the governments out of this area. To allow them to meddle ...a mistake!

2009 Nov 11 04:50 PM