The Oil Scam Driving Crude Over $80

Let’s talk about the nonsense going on over at the NYMEX.

It’s not just the activity at the NYMEX that’s disturbing but the way the press, who used to be the kind of people who would check out a story, simply publishes whatever spin the wealthy sponsors and their PR firms feed them.

You can’t blame the media. The only word they love more than "crisis" is "scandal", but not when the scandal involves one of their advertisers. So, given the choice, they go with "energy crisis" over "oil scam" but let’s dig a little deeper than the average reporter….

The story you’ll hear for Monday is that oil rose $1.10 to $80 on tight supply concerns that drove prices higher.

The truth is that 257M barrels of oil for October delivery were bought AND sold on the NYMEX, which started the day with 197,270,000 barrels yet, strangely, suspiciously even, at the end of the day orders for oil to be delivered in October dropped to 171,442,000 barrels. How can the price of something go up while the demand for it goes down? COLLUSION. Collusion is "a secret understanding, esp. for a fraudulent purpose." Yep, that pretty much describes it in a nutshell.

If it were just the one day, we could brush it off as a fluke and consider our evidence circumstantial but here’s how trading went for the past 4 days since Tuesday, when I predicted that NYMEX traders had no intention of accepting the 289M barrels they had ordered for October:

In the Boston Tea Party, patriots dumped tea into the ocean rather than pay the taxes imposed by a distant king. On the NYMEX, they dumped 117M barrels that were scheduled to be delivered to the American people - BARRELS YOU ALREADY PAID FOR AT THE PUMP - in order to create a bogus shortage so you can pay record high oil prices to a distant sheik.

This isn’t just criminal behavior - it’s TREASONOUS!

“A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself. For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murderer is less to fear. The traitor is the plague.” - Marcus Cicero

Look at what’s happening. I said on Tuesday:

I will tell you right now that these traders, including the 296M barrels that were bid yesterday to drive oil to record highs, HAVE NO INTENTION WHATSOVER OF ACCEPTING DELIVERY. In fact I will tell you right now that in the next 7 days, they will cancel over 220M of those barrels, which will then be measured in the October inventory reports as a "shortage" and they will then concentrate on rolling over the November contracts, currently with 248Mb on order at $76.26.

So what did happen? Well the traitors cancelled 117,558,000 barrels of oil, that’s 29M barrels A WEEK from October delivery in order for the weather girl on CNBC to be able to tell you every Wednesday at 10:30 how tight supplies are. And what did they do with those barrels? The same thing they do every month, they "roll" the contracts into the forward months, creating a false demand there for oil they never intend to accept delivery of and they have done it EVERY SINGLE MONTH FOR THE PAST 2 YEARS!

But, they are not done…

Were the traitors traders to accept delivery of the 171,442,000 barrels of oil that are still open today, BARRELS THAT THEY HAVE ALREADY BILLED YOU FOR, it would create the biggest glut of oil in US history and crash the oil markets. So these traitors traders will, in the next 4 days, CANCEL ANOTHER 130M BARRELS OF CRUDE and slip the majority of them into the next 3 months in order to create the perception that there is, simultaneously, a record demand and a tight current supply.

It is all smoke and mirrors and it all takes place on the open trading floor of the NYMEX and it’s costing the American people (at $80 a barrel) $1.6Bn per day, $11.2Bn per week, $48Bn a month - $576Bn a year. It’s a crime that’s committed right under our noses and the only way to stop it is for you to get mad!

Unlike Howard Beale in Network, I DO want you to write to your Congressman and I do know what you should say. Tell them you are as mad as hell and you’re not going to take it anymore! Send them this article and tell them to LOOK. Don’t take my word for it just start to watch, have an aide make a chart and keep track. Call a few traders in to testify and explain the logic of their actions. Ask why we are being charged for oil at "front-month" prices when they manipulate the front month contracts by ordering barrels they have absolutely no intention of accepting delivery of.

Ask them who gives the orders, ask them who signs the checks - FOLLOW THE MONEY!

Speaking of Exxon, that company’s market cap jumped back up to $495Bn again and may touch the magic $500Bn mark again tomorrow so let’s see if they can hold it despite the fact that refining margins, which saved them last quarter, are down over 30%.

Exxon is the world’s most valuable company. They don’t cure cancer, they don’t feed people, they only employ 106,000 people - 1/4 McDonald’s 465,000 (market cap $65Bn), 1/3 of Sears’ 352,000 ($18Bn), less than 1/2 of Home Depot’s 247,000 ($70Bn), 30% less than P&Gs 138,000 ($212Bn), a little more than 1/3 of GM’s 280,000 workers ($20Bn) and just over Pfizer’s 98,000 (167Bn). So we richly reward the company that rakes in the most money - through whatever means necessary, while employing relatively few people…

Is this the map for America’s future?

It’s a microcosm of what’s going wrong with our society. Manufacturing jobs are shipped overseas and XOM gains over $300Bn in market cap since 2002 without hiring more workers or producing more oil - it’s the same people, doing the same work for MUCH more money. How much more? In 2002 XOM billed us $200Bn for their products. In 2006, they produced 5% LESS product and billed us $165Bn more ($365Bn) for it and their operating income jumped from $17.5Bn (8.7%) to $67.4Bn (18.5%).

That’s right, they raised the price of oil from $30 a barrel to $80 a barrel, costing the American people over $500Bn a year in retail product prices in order to make an exta $50Bn. God bless us, everyone!

"War is when the government tells you who the bad guy is. Revolution is when you decide that for yourself."

Comments

[Malkiel]

William Jennings Bryant lives again, crusading against the commodity market the way Jennings' farmers used to believe evil Eastern commodity traders were colluding to steal their crops. The commodity traders do what it's logical for them to do to make a profit within the rules of the market; if there
is genuine collusion, let the market and FBI investigate it; let Congress regulate it; but let's not draw ridiculous far-reaching conclusions just because the commodity traders are using the rules to profit after absorbing all the risk the public has been relieved of...

2007 Sep 18 01:04 PM

[User 5272]

Wow - what's next? Black helicopters?

It's really very simple. Supply and demand. Demand is climbing, supply has been flat for three years. Everything else is just noise. Just take an objective look at the EIA data (unless of course you think they're also in cahoots with the NYMEX traders, the government, big oil and the Easter Bunny) and the trend is obvious.

But of course, if the facts get in the way of a preconceived notion, just find some numbers that can be shaped to your call it a conspiracy. Because heaven forbid you couldn't possibly just be WRONG.

2007 Sep 18 02:51 PM

[revas]

The author, who seems to be totally unfamiliar with the workings of futures markets, is welcome to his misconceptions, but does not deserve space in this forum.

2007 Sep 18 03:26 PM

[Uncle Bill]

All his posts are filled with noisy rants like this. But go to his website and he's rarely wrong on a trade. The last thing he's doing is Seeking Alpha.

2007 Sep 18 07:58 PM

[Greg Pinelli]

I've been down this road with Mr. Self Important before..he couldn't answer any of my previous criticisms of the garbage he writes..and he won't answer anything legitimately this time either. Futures markets are driven by moment to moment decisions. NO ONE..I repeat no one..takes delivery on the futures markets. Mr. Davis' outrage is nothing but a front for his phony self promotion.
Oil/Gas are going substantially higher because of fundamentals. My advice...slam this loser everytime he writes his over inflated nonsense. Buy oil/gas Closed End and Exchange Traded funds when there are dips..and wait for the numerous things that are telling everyone..except this clown...that higher prices and profits are coming.

2007 Sep 18 08:42 PM

[Philip Davis]

Evil Eastern commodity traders WERE colluding to steal their crops!

Revas, I would love to hear your take on why 270K contracts were traded today netting a drop of 48K open (1/3) leaving just 123Mb on order. Who benefits from all the buying and selling when they all know they are paying a premium for contracts they absolutely need to cancel on Thursday?

If there are absolute long-term supply and demand issues in play here, why can you buy a barrel for under $75 anytime after next June? Also, why don't people - not airlines, not car companies, not industrial users... If I could buy options on XOM (and I don't even like them) for $13 less than the market price now for delivery in 2015, I'd pretty much just do that and retire - yet no one wants $69 barrels of oil for Dec 2015?

2007 Sep 18 10:59 PM

[Vladimir Senkov]

I know you DO know the difference between an option and a futures contract. So why are you trying to make a point comparing options on XOM with a futures contract? That just makes you look silly.
Crying foul when prices move against you also makes you look silly.
Being an oil bear doesn't make you look silly. You can believe whatever you want to believe and place your bets based on that, that's cool. The more believers/gamblers we have, the more liquidity, they tell us. And the more liquidity, the cheaper it is to make bets and the more efficient the system is supposed to be, or so they tell us. I'm not necessarily a believer in that, but that's a different story.
But when you made your bet and then something doesn't go your way you have to accept that either you were wrong (abandon position) or . . . the rest of the world is temporarily insane (keep betting against the world). It doesn't matter how many contracts cancel. They always did, do and always will. When you try to make a story out of it and try to convince the world that it is insane based on that "news" it makes you look almost as ridiculous as when you argue that backwardation is illogical because . . . of something that had to do with options on XOM. Not quite as ridiculous, but you know what I mean.

2007 Oct 27 01:27 AM

[User 107648]

The rising price of crude is a perfect example of a market system working exactly the way it is supposed to. Oil reserves are a finite resource and as demand rises the price also rises. Rising oil prices encourage consumers to reduce their consumption and also provides an incentive for the development of alternatives. If oil prices were held artificially low then we would run out of oil much quicker than we otherwise would and when we did run out our alternative energy technologies would be more primitive than they otherwise would have been had we allowed the market to work properly.

2007 Sep 19 01:46 AM

[msg]

This gentleman has no concept at all of the function or purpose of physical commodities markets. Does he understand consumers and suppliers hedge in the futures markets with no intention of ever taking physical delivery?

Wow, he predicted that open interest in the delivery month is going to go down and rolled to deferred months! Amazing!

Market participants roll from the delivery month to the second month in EVERY futures market, from bonds to beans to euros, thereby transferring open interest to a contract not subject to delivery.

To equate open interest with "orders to be delivered", and a reduction in open interest as "canceled orders" is ludicrous.

Please, take a basic commodities course offered by any futures exchange, or speak with a 1st year staffer at the CFTC and you will realize how ridiculous this treatise sounds.

2007 Sep 19 02:05 AM

[Aquater]

Very clear counter-point, well articulated. Better than ranting one way or the other. This kind of logical explanation is more useful than noisy spitting at the sun.

2007 Sep 20 01:11 AM

[anindya banerjee]

If i got you right, by barrels billed mean Open interest. Now it is a known fact that actual delivery volumes in futures market across the world is miniscule.Therefore, Nymex is no different. A futures market is place of price discovery and not a alternative to a physical market. It is fact that if 200 million barrels of deilvery is accepted then it shall create massive glut. However, at the same time, somebody has tohave to have that much oil to give delivery. I agree with you that monet flow is adding to prices but it has to eb understood what is causing that. Irresponsible spending behaviour from Governemnt and ultra-loose monetary policy from Central Banks, creating massive growth in money supply(inflation). Where shall the money go, they are moving into various asset clases in search of return and here oil is no different from the CDO that the money buys. Therefore, in order to prevent money from chasing oil ike this way , we have to seek government res-straint and discipline in Central Bank Community. Problem is inflation is like "frog in warm water episode": FROG ENJOYS THE WARMTH INITIALY AND BECOMES CAREFREE OF THE FACT THAT WATER SHALL SOON REACH BOLING POINT. Here the warmth is inflation and we are enjoiying as we see our investmenst grow in value and it we shall continue to do it as long as we do not realise how our purchasing power getting eroded. The day we recognise it, we shall react, Bonds hall collapse and asset classes shal, deflate.... so shall your OIL PRICE...

2007 Sep 19 02:57 AM

[User 96432]

your spelling is bad

2007 Sep 20 02:19 PM

[oiltrader]

Looks like somebody's lost a lot of money going short on crude oil :))

2007 Sep 19 03:22 AM

[oiltrader]

Please remove this financially illiterate reincarnation of michael moore from a reknowned site like seekingalpha. As an oiltrader, I'm apalled at how seekingalpha could print bs like this. The author obviously has no idea of how commodity markets work. The arrogant illiterate is especially unaware that ALL MARKETS have players other than hedgers called speculators who provide the liquidity necessary to lubricate day to day trading and who have no intention of taking delivery at expiry. Davis obviously doesnt know the meaning of the terms open interest,rollover and the fact that open interest in crude oil(and lots of other commodities) has exceeded the physical demand by a factor for years. Is there a way to rate an author/article on seekingalpha?

2007 Sep 19 03:29 AM

[Sr. Pessimist]

So they make the purchase and then cancel part of the order, which artificially constrains supply. Again. Maybe there should be established a nonprofit vertical oil company that is there for the good of the people? Buy the crude barrels on Nasdaq, refine the oil, and then sell it to gas stations, undercutting the criminals at Exxon and wherever else. Exxon is run by the same criminals who continue to refuse to pay environmental disaster damage awards in the Alaskan Valdez oil spill to Alaskan fisherman, if I'm not mistaken. $5 billion worth.

2007 Sep 19 09:15 AM

[Mmarrkk]

Mr Croner: exactly when did Exxon become criminals? I believe the damage award you are referring to is under appeal. In the U.S., we have a system of laws, courts and routes of appeal. When an award is granted, we all have a chance to appeal the award and there are a system of courts to work through. That is exactly what Exxon is doing, carrying out their constitutionally defined appeals process. And you forgot to mention that Exxon spent billions and billions on the clean up effort. They fixed the problem caused by ONE EMPLOYEE and spent billions. They believe the award of punitive damages was not called for and a few courts have agreed with them. What exactly is criminal in this? Murders get to appeal their sentences for years and year. Why not give the same opportunity to upstanding, tax paying corporate citizens who have contributed more to this world than Mr. Davis?

And Phil, please, give it a rest.

2007 Sep 19 09:55 AM

[the_Bird]

I'm going to join the chorus of folks asking why someone who clearly does not understand how futures markets work allowed to publish a piece about the futures market on seekingalpha?

2007 Sep 19 10:39 AM

[jonreagan]

This is on a par with the 9/11 conspiracy theories; just last week, Castro was telling us that a plane didn't really go into the Pentagon...it was an inside job.

Suppose there was some credence to this supposed nefarious plot. With the 2008 presidential race in full swing, wouldn't you expect one of the Democratic contenders--maybe Gravel or Kucinich--to raise the issue, in an effort to break out of the pack? Given the voters' anger over high gas prices--let's face it, this is something they relate to--I can't think of a more potent issue politically.

If they don't, I guess we're just destined to be crucified upon a cross of oil.

2007 Sep 19 01:05 PM

[shiboke]

I'm long on 2 lots of NYMEX December oil, and this makes me a traitor. Thanks loads. How am I supposed to hedge against higher oil prices, keep 1000 barrels of oil in my back yard?

In other countries, price is controlled by nationalizing the oil companies. Is this what you want? Nationalize Exxon? Sure, they are a bunch of pirates, but they (unlike the federal government) actually know how to produce and distibute the stuff!

Exxon doesn't cure cancer or feed people. BUT, they sell the drug companies petro-chemicals, they sell the farmers the diesel to grow the food! They sell you the gas you put in your car, and they sell the utilities the fuel to make the electricity to run the network that allows silly people like you to rant on about, well, whatever. You may not like it (I don't), but without the oil companies, life in this country stops. Without the oil they produce, we have a 19th century lifestyle.

If you want a traitor to go on Capital Hill and explain himself, my email address is shiboke(replace with an ampersand)gmail.com. I'll give them an earful. In the meantime, please pull your head out, get some oxygen, go learn about futures markets and oil, and then write something. Learning something about a topic before you write about it makes your prose more effective

2007 Sep 19 02:28 PM

[adave24]

Why do these traders/traitors care if the price of oil goes way up or way down because they can make just as much money if the price goes down (by shorting it) as they can if it goes up. All they care about is knowing what direction the price is going to go in. Right?

2007 Sep 19 03:16 PM