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We all know the story of the Emperor’s New Clothes.
It’s the one where a con man convinces the foolish king that he has the finest suit in all the land when there is nothing there at all. Today was a day for exposing several scams. One we spoke about yesterday was Michael Masters’ testimony to the Senate on the great commodity scam. Also yesterday Friedman Billings Ramsey (FBR) moved into my camp and stripped First Solar (FSLR) down to a sell rating, sending that stock tumbling 7% today, passing our $285 target (so we covered). Another naked scam that came to fruition today was the artificial shortage created in this week’s oil inventory report, which I said would happen way back on April 18th, when the crooks at the NYMEX canceled all but 22M barrels that were scheduled for May Delivery, over 20M barrels below Cushing’s normal capacity.
Not only that, but the "experts" estimated we would have an inventory build this week, when clearly a massive shortage had been created. This led to a "disappointing" crude inventory report today and gave the NYMEX pump crew a chance to test $135 this evening.
These jokers were supported by the usual array of talking heads on CNBC, who are now known as the oil apologists network (as every anchor they have just spews industry talking points to anyone who might suggest this particular emperor is less than fully dressed). The new scam they have going is that they now have a series of guests whose talking point is that "oil prices are up because the world consumes 87M barrels of oil a day and produces only 85M barrels." This 2M barrel a day shortfall does indeed sound shocking until you realize that what’s really shocking is that it’s repeated on CNBC two or three times a day and not once does a "newsperson" point out that both OPEC and the Oil Companies (who are testifying under oath today) say this is patently untrue. Also, wouldn’t common sense suggest that if we were short 730M barrels a year that someone might have noticed it? This isn’t just a lie, it’s a massive fabrication aimed at inciting panic of a very profitable nature for energy traders and guests like the recently proclaimed "greenie," T Boone Pickens.
And how green is our T Boone? Not very, it seems. Bespoke Investment Group ran a list of Mr. Clean’s holdings and it turns out he’s actually up to his eyeballs in crude. That’s right, while Mr. T was on TV telling you he was short on oil he actually increase his holdings considerably and then spent a great deal of time "talking his book" and working with GS to drive oil up to their $140 short-term target. Here’s where T Boone is making his money:
Now I don’t have an issue with T Boone the investor - this is a brilliant portfolio and he’s done well for his clients - but for CNBC to give this man almost unlimited airtime and to present him as and "independent expert" on the energy markets is criminal! What happened to journalistic integrity? Also, name the energy bear on CNBC. Come on - surely there must be one - just a token player to give a contrary opinion against the nearly 24-hour pump-fest that makes up a typical day on the network. Are we in Russia? Is this Pravda? What the hell has happened to this country where this kind of crap is passed off as news?
And CNBC and their guests have such total disdain for us viewers that they think they can make up a HUGE lie like 2M barrels of oil PER DAY is being consumed over and above what is being produced, as if we are too stupid to calculate that that would work out to 730M barrels a year or a world-wide shortage of 14M barrels a week, yet this is the utter nonsense they need you to swallow in order to have you accept the fact that oil can be $130 a barrel for any reason other than manipulation and speculation.
Obviously, Mr. Pickens is a speculator, yet somehow the regulations that used to have guests on TV disclose their positions to you before they give their opinions have been thrown out the window and they don’t even bother to pretend to vet their guests anymore - just another example of how the government, through the simple act of lax enforcement, can allow the system to be perverted by market manipulators.
The really sick thing is that we are cast in the role of the people in this version of "The Emperor’s New Clothes." King Oil parades out into the crowd wearing nothing but a very expensive smile while all the court jesters on CNBC ooh and ah at the magnificence of the demand cycle, even though there are no fundamentals there at all! I will continue to play the role of the small boy in the crowd who points and laughs and says "But there’s nothing really there," as I did with housing two years ago, but until you start pointing with me, until the voices of reality drown out the sycophants in the mainstream media. the people of our kingdom will continue to be taxed to pay for the kings’ imaginary outfit, until we expose him for the naked fool that he is.
David Fry is joining the cause (thanks DB!) and points a fed-up finger at this atrocity; Michael Masters did a great job enlightening Congress on Tuesday; and the London Telegraph points out that not only does OPEC have a current production surplus of 2M barrels a day but that surplus will rise to 3.5M barels a day BY NEXT YEAR. Also, non-OPEC production is rising fast with a 1.5Mb gain in non-OPEC production coming down the pike next year. Of course there’s always the Iraqi wildcard as that country is still producing over 1Mbd less than they did before Bush decided to go on a WMD hunt over there.
Iraq, by the way, is no longer included as OPEC or non-OPEC production, a very clever way to hide 2.4Mbd of production by the energy apologists. Again, you can’t have a fake shortage without hiding a lot of facts!
Lehman’s latest report - Is it a Bubble? - says commodity index funds have exploded from $70bn (£36bn) to $235bn since early 2006. This includes $90bn of fresh money. Energy takes the lion’s share. Every $100m flow of investment money into oil lifts crude prices by 1.6pc, it said. "We see many of the ingredients for a classic asset bubble," said Edward Morse, Lehman’s oil expert.
We are hoping what we are seeing is a blow-off top to oil, but bubbles can go on far longer than you expect, even when everyone knows it’s a bubble as investor dollars have a peculiar momentum that is hard to stop. Institutional investors count on this, in fact as the general public is only just now getting into the oil speculating game. Just as your neighbor bought his first "spec house" for $1M and got stuck with it, that same neighbor is now jumping on the next sure thing and buying barrels of oil for the cheap, cheap price of $135 a barrel.
It would be nice if Congress would step in now, before another $1Tn in US household wealth is wiped out, but that would leave GS and T Boone holding the bag instead of all those widows and orphans you’ve been hearing about who are investing in energy futures through mutual funds and IRAs, driving that $90Bn of "fresh money" that Lehman is noting into the market. "Fresh money" is the term you use for the guy who comes in late to the poker game after you’ve wiped out the first round of suckers - very nice…
This article has 52 comments:
Montague
The only reason the Saudi production is as high as it is today is that the Royal family will pump every last barrel out of the ground in ten years in order to stay in power.
I enjoy how this article points out exactly what you would want to do if you needed to maximize the profit from a dwindling resource, cause a supply panic before it starts truely running out!
We live in a world of lies and it can be a challenging task to filter out the truth. Thanks for your help in doing that.
More of the same for at least another 4 years. I agree that the election year has a great influence on economic 'manipulation'. Not that McCain will change much of that. Are we still talking about the 18c gas tax moratorium? Pathetic, isn't it? But, get used to McCain, as the Democrats are blowing this one.
Anyways - Awesome article! Great summary too...made me chuckle a little bit, because I'm the one standing by the poker table laughing at the fresh money morons sitting down about to be swindled. The news outlets are just sucking up viewership with this no more oil/ gas at $7/Gal by August B.S. I'm a believer in peak oil theory, but the short term run-up is just sickening.
Markets will react, over react, and correct huge but the uptrend for oil prices will not reverse. The dollar is in the final stages of its decline and the nation is 10 of trillions of dollars in debt without any manufacturing base and corrupt financial system, being governed by lawyers who have zero idea of fundamentals or science.
In other words you had better start learning to provide more for yourselves. This experiment of a HUGE central gov't providing all and taxing the base has been tried before, and it has always failed. Anyone that advocates this gov't for anything at all is either a fool or a liar.
Good Day
If you want to stick it to oil, convert to E85, it costs about $400 and the perfomance is better. Your MPG will drop, but here in Colorado, E85 is $2.35/gal so that more than compensates for the mileage. Stick it to them anyway you can.
However, I also believe we should be exploring for more oil and gas domestically at the same time as a safety valve to bolster our economy and possibly avoid unnecessary armed conflicts in the future. It appears now the price of oil will have to go significantly higher for that to happen.
Or are the "oil experts" (most holding significant positions), simply revealing the presence of a startling new market paradigm "Peak Oil"?
While many bemoan the environmental restraints put on domestic drilling, is there anyone who'd question the fact that every other nation in the world is busy turning their closet upside down, in a frantic search for new fossil fuels?
We continue to live in the US of Amnesia. During the Tech Bubble. every pig was sure to fly, every new issue a winner, every analyst a buyer. IRA's, 401ks...fuel for the fire. What about housing, "can't go down", "every hard working American should own their own home". Don't think that the Street's securitization of home loans propelled the proliferation of substandard paper and ensuing prices? Bundled, graded and peddled worldwide as "AAA" paper, thank you!
theinvestingspeculator...
Yes, virtually every other nation in the world is madly searching for new oil and gas supplies (including Cuba off the Florida coast!). The good news is they're finding it all over the place, the bad news is it's expensive.
Of course, since 70% of the earth's surface is covered by water and more remote land areas have never been explored, it stands to reason there are tremendous amounts of energy yet undiscovered.
"Peak" oil and gas doesn't refer to the total amount, just the easily found and recoverable "cheap" stuff. Indeed, there's growing evidence that petroleum products aren't fossil fuels at all, but naturally occurring substances in the earth's crust.
The problem is cost. And that's the problem with all non-petroleum based forms of energy, as well. The marketplace will eventually sort all this out, but simply from an economic and security standpoint, we need to have a growing supply of domestically owned and produced oil and gas in the mix.
Because if real spot oil prices today are the true unmanipulated price, then futures prices all make sense. Doesn't mean they are right in their bets, perhaps those futures will lose money - but they aren't ridiculous.
I know I sound like I'm on one side, but I'd love for someone to show me how the actual spot price today is manipulated.
As always, however, trying to predict governmental actions is difficult, and can be dangerous to your pocketbook. Just ask any number of investors who've been burned by government policies in any number of industries in the past.
I would have thought the Congress would have relented on domestic oil and gas exploration (...and a host of other energy related issues like permitting nuclear reactors, refinery and pipeline regulations, importing sugar based ethanol, etc.) by now, but none of that has happened.
Without some news to support a pullback in prices, it looks like the sky's the limit for oil futures. And, no, taxing the oil companies and having the politicians spend the money on their pet projects won't help, either. Nor will suing OPEC... those types of ridiculous and ineffective policies would only take prices even higher.
Hudlow
P.O. Box 2629, 4161 Mary Lou Street, Pahrump, Nevada 89041
alliedscience.org Telephone: 775-727-0866 E-mail: grhudlow@yahoo.com
Form Project Summary
Project Name:
General Introduction:
Grant Hudlow FOUNDER,CEO
One person can make a difference, has been the driving philosophy for the life of Grant Hudlow. It was this mind set that led to the birth of Allied Science, Incorporated in 1989. Now, nearly two decades later, with a financial commitments base exceeding $7.5 billion, Allied Science, Incorporated carries it’s message of wholesome, values- oriented products across the United States, Canada, and Europe.
“When we reach people, if we can sell a product, great, but we are first and foremost about spreading our message, “ says Mr. Hudlow. “We want people to know that their is an alternative to the sex, violence and profanity that is in so many homes today.”
Mr. Hudlow attended California Institute of Technology and the University of Nevada at Reno
Before spending 13 months on the Korean DMZ, then an industrial turn around expert with Procter & Gamble, Stewart Warner, Fuller Paint and Fairchild Semiconductor.
Mr. Hudlow left big business to create Allied Science, Incorporated after realizing the need for uplifting, wholesome discussions that carry a positive messages. “I knew this was something I had to do,” Mr. Hudlow says. Creating Allied Science, Incorporated was more of an important work decision than a business one.”
Mr. Hudlow has since named the chemistry to make this new industry possible, led the design engineering, sold $7,500,000,000 in orders for factories and sold $7,000,000 in orders for the products from the factories around the world. Armed with the belief of his convictions, he has grown Allied Science, Incorporated from a dream to a major international corporation with more than 200 alliances.
Mr. Hudlow enjoys assisting young people in ther entrepreneurial aspirations as well as working with and training school teachers and other professionals. His professional accomplishments and community service have been recognized by local churches and local civic organizations.
Mr. Hudlow has two children and one grandchild.
A little know fact about Mr. Hudlow is his love numbers and statistics. Retired CEO S.B. Devlin says, “No one sees through a problem faster than Grant. He’s a true statistical genius.”
Terry Ellis, Sr.
has valuable engineering and construction contacts. He has hands on management and business experience with Fluor Daniels, Brown & Root and others
Dr. Chuck Baroch,PhD Chemical Engineering, is a retired CEO with Babcock and Wilcox.
Dr. Davis Clements, PhD, is a Chemical engineering Professor at the University of Nebraska in Lincoln, Nebraska.
Gary Smith is a highly regarded Chemical and Petrochemical Engineer with quality contacts and broad work experience. His experience ranges from blending his own gasoline for resale to employment with major chemical companies such as Dow, Dupont and Union Carbide. Mr. Smith has a BS and MS in Chemical Engineering from the Georgia Institute of Technology. Mr. Smith assists with the engineering and construction of the total project and with the management of the complex.
Lawrence G. Erskine, President Bionomics International,Inc., enjoys a solid management and marketing reputation in the USA, China, Japan, Singapore, New Zealand and Australia. Mr. Erskine owns and operates a Hazelnut business in the state of Oregon and ships finished (value added) Hazelnut products around the world. He imports and exports equipment. Mr. Erskine spent 10 years in management with General Foods Corp. He attended the University of Oregon, obtained a BA in marketing from Northeastern University and attended an accelerated MBA (equivalent) course from Harvard University, via General Foods Corp.
Al Avolicino coupled his education in art with his management and leadership skills to become marketing and advertising manager for some of the largest companies in the U.S. Mr. Avolicino will devote his time to establishing contracts with waste generators and creating the necessary educational campaigns. He will hire and train the marketing and sales people. Mr. Avolicino has enjoyed management positions with such companies as General Foods Corp., Servatron,Inc. and Farmer Brothers,Inc.
Frank Lopez CPA, Lopez and Company,Inc. will be handling the tax and accounting responsibilities for the projects. (Background an resumé available on request)
The Allied Sciences, Incorporated team’s strategic alliances include work with the following:
Elko City Council, Phenol brokers all around the world, Economic developers all around the world, BISNIS, USDOC, USDA, US EX-IM Bank, University of Nebraska, Lincoln, UNLV, UNR
3. Funding Request:
$70,000,000 to buy $100,000,000,000 of coal on the surface (that can be mined for $.85 a ton) plus $100,000,000 to build, debug and operate a factory that makes $2,000,000 a day by converting coal to 100,000 barrels a day of gasoline and diesel that sells for $.55 a gallon wholesale.
Term:
First tranche: $170,000,000 (to buy the coal $70,000,000; to get environmental permits $7,000,000 engineering fee: to buy the equipment $32,500,000; to build the plant $25,000,000 labor and $15,000,000 contractors fee; to debug $8,200,000; operating cost to profitability $12,300,000.
Community Impact:
Allied Science will bring 1000 new jobs initially; A $50,000,000 annual payroll; A chemical engineering lab to the local community college; Computers to local children; And money for local infrastructure as needed. In a nutshell, Allied Science, Inc. serves the community by contributing a significant portion ( which has been factored into the base product cost and does not affect returns) of the revenues generated from the factory going to support local charities, help fund community City and State Public Services, as well as supporting biotech and medical research organizations.
Environmental:
With the allied Science,Inc. facilities, there is NO burning, therefore NO smoke stacks. NO smoke stack means No air pollution. The residuals are distilled water, which is evaporated, and an ash which is stored and conditioned for one year and is used as a non-toxic powder to strengthen roads, make 19,000 lbs. concrete, and for strengthening wallboard.
Specific Performance:
From funding, Three months to buy the coal ; Two months to get environmental permits ; Three months to buy the equipment ; Six months to build the plant; Two months to debug ; Three months to profitability.
Exit Strategy:
At end of nineteen months after funding, Allied Science, Incorporated will contractually begin to return 150% of the amount funded for each project. Allied Science, Inc. expects to complete this process within two years of receiving funding.
Supporting Documents:
15 pages of supporting documents are available on request as an attachment as needed.
10. Letter of Introduction from Bank available at later date.
"I know I sound like I'm on one side, but I'd love for someone to show me how the actual spot price today is manipulated."
i am not one who believes that either spot or futures prices of oil are being manipulated. i don't believe in conspircies in large, liquid markets but for one instance i'm aware of....which is the hunt brothers attempt to corner the silver market in the late 70s. they failed and it nearly broke them. it can happen but it's rare.
i do believe that irrational pricing can occur through speculation. that is not to say there is no demand for the underlying asset at inflated prices....of course there is...didn't PT barnum say there is a sucker born every minute? but it was the speculative mania that drove the pricing...not underlying demand.
look at a 10 year stock price chart on CMGI...once the darling of the internet world...and you'll understand.
Bubble
proponent
"Peak oil" is a hypothesis that states that oil production will rise until half of the reserves are depleted. Once that happens, production will decline commensurate with the increase. Nothing more, nothing less.
Peak oil has nothing to do with:
1. Speculation in oil futures
2. "Cheap" or easy oil.
3. Oil demand fundamentals.
4. The coming end of the world that Matt Simmons, Hirsch, Boone Pickens, and others state.
Plain and simple this is a gigantic bubble created by the same forces that the tech and housing bubble had:
Three major things clearly have supplied the gasoline for this fire (no pun intended).
1. Negative Real Interest Rates
2. Lax regulation: Regardless of what you think about the fundamentals of oil prices, peak oil, etc., the lack of knowledge that the CFTC has is very clear. They have zero data on ICE trading, and we have had at least 5 major scandals with respect to energy trading in the last 6 years. If these markets were transparent, I would be ok with the rise in prices. But they're not.
If you don't think commodity prices in general have been manipulated, go ask any farmer about their experiences with trying to hedge their food production on the futures markets in the past year. Remember that for the last 80 YEARS until the past 12 months these markets did not have these problems.
3. Creation of new investment products to attract investors into arenas that they weren't in previously.
Since I haven't yet given up CNBC, let me walk you through a typical exchange on oil.
Oil Analyst: "The world is producing 2 million barrels/day less than it is consuming. We are out of oil. Oil will go to $150 and the airlines will go bankrupt."
Greasy Haired CNBC goon: "So how do we play this?"
Oil Analyst: "Well, not to worry, we've just created a new ETF that you as a lucky investor can buy. For every dollar crude goes up, the ETF goes up 10x."
CNBC Goon: "But what if oil goes down?"
Oil Analyst: "It never will, except for a small correction. Any dips are a buying opportunity. There's no end in sight. Oil will sell for $25,000 a barrel in 2015 and the fed will cut the interest rate to 0%."
CNBC Goon: "Wow, I'm convinced that there's no speculation in the market."
Speculation does not mean that the prices are being manipulated by any one person or entity. Rather it is a herd mentality where people chase high returns b/c their friends/neighbors/comp... had them from the same investment.
Sophisse: Did you know that Goldman Sachs,Morgan Stanley, and other hedge funds actually trade/distribute the commodity as well as gamble in the futures markets? See below for details. I'll let you all draw the conclusions.
business.timesonline.c...
online.wsj.com/public/...
online.wsj.com/article...
www.commoditytrader.co...
Bubble
proponent
John Kilduff, of MF Global, is VP of Risk Management for their oil trading team. He is one of CNBC's regular contributors.
In the Australian Herald Sun he is quoted as saying:
"John Kilduff, analyst at MF Global, said the world is consuming 87 million barrels per day of oil while producing only 82.6 million barrels."
www.news.com.au/herald...
Using these stats, if we did this for say, since the beginning of the year, and the US absorbed 25% of this inventory decline since it consumes 25% of the world oil, we should have depleted our oil inventories in the US by 300 million barrels and would have. If you look at the EIA numbers, we didn't do that. The IEA numbers don't confirm this either.
Regardless of the oil fundamentals, these "experts" need to be taken to the woodshed when they "educate" us with flat out inaccurate information.
video.google.com/video...
spenser
A great and badly needed article! Thank you very much for your work!
People old enough to remember the scam the big houses and the oil companies pulled on America in the 1970s should never go for letting them con them again.
But I'm afraid that we have thousands of children running hedge funds and mutual funds who weren't even around in the late 90s.
The current oil/energy investing mania reminds me so much of the Y-2-K con and the Dotbomb mania of the late 90s.
At that time you couldn't convince anyone that the date on a computer had nothing to do with controlling grids at power plants. After Greenspan went before Congress and followed along with this nonsense, people would actually fight you if you told them it was foolish to spend money preparing for an event that wasn't going to happen.
The Dotbomb mania speculating was going on at the same time. When you told people that the majority of those companies being touted so highly by Goldman Sachs and the rest of the big houses had no real income, no cash on hand, and no business plan, they gave you a blank stare and went out the next day and paid $150 a share for AOL.
I would ask them, because there was no Google at the time, How are these companies going to get people to go to their web sites? They had no clue and no answer. Just buy and get rich, they believed.
Just as with their preparation for the Y-2-K con, there was no stopping them. The Monday after the first day of 2000 passed and not one negative event happened anywhere in the world, CNN reported that over $700 billion had been spent for nothing.
At the time I believed as I do now that we're living in the "Age of Technology," and have
been since Charles Babbage invented the
first computer in the early 19th Century.
At the time of the Dotbomb investing mania, I had been heavily invested in tech, but when the propaganda got heavier and heavier as the big houses sent their touts out touting stocks selling at never-before-seen ratios and Jim Cramer (on FOX at that time) said "to buy, buy, buy, and keep buying," I sold everything on March 6, 2000, and have my tickets to prove it.
Today, I believe we're in a long-term bull market for hard commodities that may last another 12-18 years, but along the way there will be both short and long-term downturns.
The major downturns will come right after big run ups, just as we've had most recently. Markets are inherently irrational, and what's going on right now in the energy sector is definitely irrational.
Now clearly, markets can remain irrational much longer than reasoning people can imagine, but the longer they run up the harder and faster they fall down; and the more people get hurt by the crash.
The same thing is going to happen in this current oil-buying boom. I think the coming bust out will happen fairly soon—perhaps over the next thirty days. But it doesn't have to.
And as the great Joseph Schumpeter taught us, "The bigger the boom, the bigger the bust."
Those of you who're irreversible oil bulls should at least get ready to bail out as soon as prices start to turn. But I really doubt if many will, for the past tends to repeat itself when it comes to manias such as this one.
Rebeldog
As far as the EIA chart on non-OPEC oil growth goes, EIA is known as having their head in their a$$ when it comes to oil predictions. Russia is apparently past peak production, yet this chart shows a big surge in oil production for them in 2009. Want to bet if that gets revised next year? We are at (very near one way or another) the peak in oil production right now. There will be choppiness in the energy market as people grapple with what the true numbers are (can't trust official OPEC reserves at all, but the fact is they could make a lot of money selling more oil right now, the incentive to cheat on their quotas, as they typically have done, is extremely high). The general trend is up, and will continue that way until a real recession takes away our energy demand. In the far future, conservation, electric vehicles and alternative energy will also reduce our demand.
I can't speak to the 2 mbpd consumption over production, since I haven't heard that bandied about before and don't know the full context. Obviously that can't be sustained without big changes in inventory, but neither side is giving numbers here to prove their argument.
If we want to avoid a repeat of the effects of the 70's oil embargoes, we shouldn't be wasting gas in SUVs while importing 60% of our oil (the biggest single item in our trade deficit) which also funds terrorists indirectly. It is certainly unAmerican to drive a big wasteful vehicle in these times!
I don't know a good site for tracking NYMEX contract volume from open to close but there is currently an "open interest" on the NYMEX for 378,974 contracts, representing 1,000 barrels each, that is the "demand" for July.
At the peak of June trading there were close to 450,000 open contracts but the NYMEX allows traders to "roll" open contracts to longer months WITHOUT PENALTY and by the close of the June contracts, less than 30,000 contracts (30M barrels) were actually finalized for delivery. The other 420M barrels that were, at some point, contracted to be delivered in June, were "rolled" into July, August, Sept.. contracts.
You can track this nonsense here on a daily basis:
futures.tradingcharts....
Notice how there are 378,974 barrels "ordered" for July and 91,509 for Aug and 94,177 for Sept and 49,177 for Oct. I will tell you for a fact, right now, that on June 24th (close of July trading) there will be LESS than 40,000 contracts accepted for delivery. All but 40M of the now 378M barrels that could be delivered to the US PER THE EXISTING CONTRACTS will be cancelled by these evil manipulative bastards in oder to create an artificial shortage of oil each month while driving up the apparent demand for the next month by rolling the contracts forward.
That's how the scam works.
Also, note that the "front month" contracts, the one they print on CNBC etc. rose $1.38 today but longer contracts were negative, with the Dec 2015 contracts that they couldn't stop talking about and pointing to just 2 days ago when they crossed $140, have quickly and quietly dropped to $132.77 just 48 hours later.
futures.tradingcharts....
It's very easy for the oil apologists to point to all sorts of abberant statistics to try to confuse you. China demand is a classic example - it's up 40% in the past 5 years. What they don't tell you is that that 40% was a rise from 5Mbd to 7Mbd but Chinese production went from 1.6Mbd to 4.1Mbd during the same amount of time causing them to import 500Kbd LESS than they did in 2003.
No, it's much better to scare you by saying 40% even though that 40% is about how much fuel we would save in America if we simply inflated our tires properly (10% x 20Mbd).
Mark Twain said "There are three types of lies: Lies, damn lies and statistics." Always be wary of people who throw them around without letting you take a look at the sources for yourself. It's hard to pick up in the text on Seeking Alpha but I try very hard to have links to all my stats. When CNBC shows you the Dec 2015 contract one day to "prove a point" and then doesn't show it again, you need to be suspicious.
Just ponder that those 378,974 contracts were traded on the NYMEX today 425,099 times. That's a churn rate of 115%! The net change in price was 1% and the net change in open interest was less than 1%. What would you think of a stock or option contract where the entire float turned over in one day? This is what goes on EVERY SINGLE DAY at the NYMEX.
425,099,000 barrels of oil were traded today, readily available to any trader who wants them delivered in July, with another 136,725,000 August barrels traded and another 73,297,000 September delivery contracts written yet in not one of those months will more than 42M barrels ever be delivered because that is the transfer capacity at Cushing, OK.
So the ENTIRE thing is a joke. People are ordering barrels they don't want with contracts written for a place that will never accept delivery AND, if anything actually happens to disrupt supply, there is a loophole called "Force Majeure" which allows the contracts to be cancelled by the shipper due to "supply distruptions" so they are not even buying insurance.
The only thing they are insuring is that they will bleed you dry by forcing you to pay $130 a barrel for something that has a global average production cost of $42 a barrel. This is nothing less than the single largest con in human history and your "reliable sources" are a government that was elected thanks to hundreds of millions of Petrodollars of campaign contributions and a media that is owned by companies that either are energy companies or accept millions of dollars from energy companies.
The 30M barrels of oil that were actually accepted for delivery in July set someone back $4Bn, that sounds like a lot until you realize that that $4Bn locked in a price increase of $25 a barrel during the month of May x 85Mb a day worldwide or $65Bn bonus dollars paid to the same people who are churning oil contracts in the pits.
What if you had 15 shares of IBM at $100 and the price of the last trade on June 24th will set the price you can sell IBM for in July. What if you could buy that last contract for $150 and that would let you sell the ones you are already holding for $150. You would spend $50 extra for a single contract but would collect $50 more on the 15 you have for a net profit of $7,450!
Would you do it? Do you know anyone who would? Do you think no one would?
That's how the NYMEX works. Those 30M barrels that are "accepted" at the contract close determine the price of the 85M barrels PER day that are delivered for the 31 days of May. That's 2,635 barrels over 30 or 1/87th.
This is how you are being ripped off, this is how the manipulation operates, this is the only reason that oil is over $70. There is no shortage, there is no great demand, there is just a greedy cadre of immoral people who manipulate a system that costs the American people $500Bn a year (the premium we're paying over $70) just so they can skim a few million for themselves.
Have a happy Memorial Day weekend folks!
Now that's funny!!!
The "evil speculators" drive up the price of Oil & other commodities - like wheat. While they are doing this, the wheat farmers make real money, correct?
During this year's oil bubble, American oil producers are busy pulling marginal oil out of the ground, new production is being chased, and consumers are engaged in "permanent demand destruction".
Once the oil bubble pops, won't all those "evil speculators" be the ones who get wiped out?
And doesn't every barrel extracted in the U.S., and every whiff of domestic demand destruction lead to an improved balance of trade?
If you're right and the oil bubble is temporary market excess, why complain about these things?
Sadly, it won't be the "evil speculators" that are wiped out, it will be all the average people and pension funds that are being herded into the next "sure thing" investment like sheep to the slaughter right at the top of the market.
Don't forget Goldman Sachs made over $6.5Bn in 2006 and 2007 SHORTING housing after spending the first half of 2005 upgrading the builders. Funny how they caught the turn just right but forgot to mention it to anyone until it showed up.
Why complain? Because people are being robbed and I care, because this country is being destroyed by the greedy who prey on the fear of the people to make them accept these abuses without making "unpatriotic"... or "anti-capitalist&... complaints.
As Hermann Goering said: "It is the leaders of the country who determine policy, and it is always a simple matter to drag the people along, whether it is a democracy, or a fascist dictatorship, or a parliament, or a communist dictatorship. Voice or no voice, the people can always be brought to the bidding of the leaders. That is easy. All you have to do is to tell them they are being attacked, and denounce the pacifists for lack of patriotism and exposing the country to danger."
This oil bubble is war profiteering plain and simple, the people of this country have been led to believe that the world is an evil place and problems cannot be solved through diplomacy and the constant state of war allows oil interests and defense contractors to make hundreds of billion more dollars each year than they did before their man got elected. I'm sure it's all just a happy coincidence for them...
In the last 3 years, US$ lost 50% against euro. Consequently, if commodities did not change in euro then their prices had to double in US$.
However, EU central banks are too printing a lot of new euros. Consequently, commodities had to go up in euro too. There are no ways to "print" commodities.
The author unfortunately does not mentioned that US government and US Congress totally irresponsible policies are the real reasons for the disastrous state of US economy and runaway commodities prices.
The Chinese are roaming the globe, looking for more energy (oil) sources, and signing long term contracts with anyone who has oil. Are the Chinese also fooled by the talking heads of CNBC??
At $130 a barrel, I believe anyone with oil is now pumping flat out. I don't think that OPEC or anyone else has any spare oil production capacity at all!
Bubble
proponent
User 199286, since you're such a data driven person, I'll be happy to connect the dots for you with evidence, as you so eloquently put it.
Much of the declines in the non-OPEC areas (Norway, US, Mexico) can largely be attributed to a lack of investment in oil infrastructure b/c oil was really really cheap back then. I'm not advocating $10 oil again, but $135 is a HUGE stretch given the fundamentals
1. The US has the Gulf of Mexico, Bakken, ANWAR and the Continental Shelf. While ANWAR and the Continental Shelf are off limits, the other two are certainly not. These fields are currently being developed.
2. Norway: Statoil has made several discoveries in the past couple of years in the North Sea but b/c of a lack of equipment has not been able to develop them. Also, major exploration has begun in the Barents Sea.
3. Mexico: While Cantarell is declining, much of the decline is due to a lack of investment in the field. In addition to that field, Pemex is increasing production at a field called Ku-Maloob-Zeep and they have another gigantic field called Chicanotepec with nearly 139 Billion barrels of oil. Once again, this is an investment issue NOT a reserves issue.
One of the points of evidence that peak oil proponents use to show that Saudi Arabia is in trouble is that they have increased their oil rig count by a third in the last few years. HOWEVER, what these folks forget to mention is that the Saudi's are developing the 500k/day Kurais field and the 1.2 mb/day Kursanyah field RIGHT NOW as well as several other development projects to increase their productivity to 12.5 million/day. Combine those two projects with increased exploration and I think the rig count increase makes complete sense.
As for the 2 million barrel shortfall that doesn't exist...I suggest you go take a look at the IEA's latest production figures that show a total production of 87.3 million barrels/day since Q12008 with demand for the year of 86.8 million. This makes alot more sense given that there are oil tankers sitting around all over the world waiting to unload crude and that there isn't a supply shortage anywhere.
As for the peak oil oracle Boone Pickens, I'd be happy to send you links from major news outlets him claiming that we hit peak oil in 2001, 2002, 2003, 2004, 2005, etc.
And for the other peak oil oracle Matt Simmons and how he doesn't believe that speculators influence the price of oil, I suggest you go take a look at this article he wrote in 1998 talking about how hedge funds in Europe deliberately ran down the price of crude oil and how they were more powerful forces than supply/demand. If you read this, you'll see that he's a complete hypocrite. In his world, when the price falls its speculation and when the price goes up its supply and demand.
www.simmonsco-intl.com...
Mr. Davis- I agree with you and your points about the NYMEX. However, I'm afraid to say that we can't undo opening the Enron loophole in 2000. Dubai and other countries will just set up new exchanges offshore if we try to regulate oil market speculation here. We can't stop the oil bubble unless we stop the underlying reasons for people to speculate in oil futures.
Even given all of this fundamental information that suggest we are not on the precipice of an oil shortage, we have not yet hit the top of the oil bubble yet.
Every other bubble bursting (NASDAQ, housing, the 2006 oil correction) was preceded by a significant increase in the federal funds rate that wiped out the overly cheap money. We don't have that going right now. When you see the Fed Funds rate above 5%, expect a major correction in oil within 3-4 months, but not before then.
Unfortunately, when this bubble bursts, the consequences will not be pretty. Goldman, Merril, and others are counterparties to TRILLIONS of dollars of unfunded commodity derivatives. If any of their hedge/pension fund pals walk away from their highly leveraged bets on crude oil in significant numbers, the collapse of these structured investments will make the subprime/credit bubble explosion look like a cherry bomb in a toilet.
The commodity bubble of the last 6 months has everything to do with the Fed's reckless policy of trying to save the investment banking community at the expense of everyone else. "Peak everything" is too simplistic of an explanation for what is going on right now.
There have been discoveries however these will take 5-10 years to bring production on line in most cases and by then I expect demand to be higher and the new discoveries will at best replace the current supply. I don't doubt reserves in the world but it's production and location. We are developing tar sands at an enormous cost both environmental and material. It takes 2000 gallons of water and a lot of nat gas to produce 1 barrel of oil equiv. The deep sea discoveries in the Gulf of Mexico (Jack field) are miles below ocean and thousands of feet below salt, and seabed. This is not going to be cheap oil. The infastructure and raw material cost to replace rusted out rigs and build new rigs will keep prices up. Brazil has discovered some fields in the Atlantic and they recently tied up the remaining 20 or so deep sea rigs. If we are turning tar sands to oil and drilling miles below ocean then I feel like we may have a problem. I don't think the world is running out of oil, since there's oil washing up on the shores of California and improved techniques can increase Iraqi production. However, I feel like we are in a lose/lose situation. If the price comes down demand will soar in developing nations and Americans will upgrade to larger vehicles. We only need 1/10 Indians and Chinese to start driving to put more vehicles on the road there than in the US. Take away autos and just the energy demands of industrializing nations and industry are enough to strain the supply/demand cycle.
While there's probably a 30% price run-up due to speculation based upon supply demand price elasticity, I believe the days of cheap (sub $50) oil are over. If you get caught up in CNBC and and focus merely on crude speculation you're going to miss a great area of investment in oil services, steel, construction etc..
It#s truly sad that the same guys who earned billions from the dotcom bubble, who created the housing mess and the cdo/subprime bubble and profited handsomely are now cashing in on the oil bubble again - while main street pays the price again and the fools in congress sue OPEC rather than the crooks at GS, JPM and MER.
being short crude might be a risky play - but itv will be the right one over the coming 2 years.
for those who are too afraid of going long dug, shorting uso or shorting crude futures, the refiner stocks offer one of the smartest plays around currently
weller
Here’s a partial breakdown:
1) For those blaming peak oil; bidding up commodities based on future supply shortages makes sense theoretically but have no place of relevancy in this debate regarding an almost 400% run up in oil over the last 3 years. That’s like claiming houses ran up over 100% between 2003 & 2006 because there was a shortage of trees. And magically, all the loggers and their politically affiliated supporters use the run up to advocate cutting more trees. Affiliation and ideology have surpassed integrity or critical thinking. The fact that there is no physical shortage of trees seems to go over the head of all the ideologues married to supply & demand talking points who are stuck with correlation=causation. If the reality is that there is no physical shortage and no unanticipated increase in physical demand then what are you talking about? Pure speculation! Reality; when any asset class is flooded with money its value goes up not of true supply & demand but due to the bidding war between the speculators and this is all paper money, paper markers. If speculator targeted rocks they’d go up in value and who would care… but all responsible citizens interested in law & order & social stability should be concerned when the target is essential to all of our lives. Even if you’re rich and unaffected by $4 gas, do you really want to live in a world that has been drained of creativity and positive human participation? Digressing to the peak oil shield… when challenged they claim a future impending crisis is the concern, OK… so now I’m supposed to believe a possible shortage in 30, 40, 50 years is behind this? That thinking is so disconnected from reality that I don’t know where to start. There are so many unknown variables that no one would actually invest on that theory because the downside is huge; alternatives could replace oil which would sink oils value, cars will get 100 MPG running on combos of crude, ethanol’s, fuel cells, huge oil fields will be located deep under the Earth, Nuclear power increasing 100 fold so we all charge our cars, etc. Anyone betting on the fundamentals of shortages would be foolish. And these speculators are not stupid, they’re just gaming the loopholes for short term gain. And when it pops, if allowed to continue, this will be the next mortgage meltdown type of event threatening our financial system. And why is this even possible? Because of our regulation phobia ideologues, incompetent and/or corrupt officials, etc. Ideologues please look at the data without a bias. Houses doubled because of new unanticipated financial instruments that artificially created a demand & allowed millions of people to believe the path to wealth was buying more homes then any individual could ever need in the hopes of selling it to the next great American entrepreneur! Oil, as well as commodities, is going through the roof due to artificial distortions in the market in a similar event. So in the end oil will be dirt cheap but the systemic damage between now and then will be huge and not limited to just a recession. There will be real pain and damage to real lives if we are starved of energy for a few years when there is no physical shortage…
2) Making matters worse is the real possibility that this is the new front for war; there are no more lands to conquer; the USSR couldn’t take Afghanistan, we’re struggling in Iraq. Short of dropping the bomb, war is fundamentally over for the superpowers and the new expression of that energy is controlling the resources of the planet. Currently, our markets our susceptible to attacks that will, in effect, ruin our economy. What killed the USSR… their economic collapse accelerated by Reagan’s military buildup. If our government doesn’t immediately enact some or all the recommendations of Michael Masters then we are opening up the door to invasion of a different sort, our markets. And the domestic flag waving defenders of pure unregulated free market theory better put t