The After Hours Oil Scam

Jul. 7.08 | About: The United (USO)

A huge effort, hopefully a last hurrah, was made to get oil up to MS’s $150 target for the July 4th weekend but, ultimately, they failed and a quick look at the chart for USO will show you why.  There was only 1 day in the last 5 in which regular NYMEX trading ended positive.  All of the other gains in crude were made in very thin after hours trading.

We can’t print intra-day NYMEX volume numbers as they are "proprietary" and no one knows what goes on on the ICE or the Dubai Exchange but if you have in intraday chart of USO that shows after-hours action, you’ll see what we see at the NYMEX (USO is an ETF that mirrors NYMEX trading).  In a typical day the NYMEX trades 240M barrels in the form of 240,000 1,000 barrel contracts at $8,750 per contract of margin to control $145,000 worth of oil (1/16th).  The margin requirements were raised from 1/30th to 1/15th in an attempt to forestall some of the speculation, the contract margin is set for the month so it reflects 1/15th of the month’s open, not the current price.

For the second week in a row, the vast majority of the gains made on the NYMEX were made in "electronic trading sessions" as the NYMEX is open 23 hours a day and floor trading shuts down at 2:35 each day, there is plenty of time for all sorts of shenanigans in the off hours.   

Again, I am going to use the USO to discuss this as most people can view that chart, I am hoping later this week that one of our Congressional representatives will be producing the NYMEX numbers and entering them into the official record.  What we have here is a shocking example of how this scam is being perpetrated on the American people and, since we are NOT talking about a lot of trades, it should be relatively easy to round up the people placing these orders and start asking them some pertinent quesitons.

Looking at the USO on 6/25 we see that they opened at $110.27 (corresponding to crude at $138) on Wednesday the 25th and, after the 10:30 inventory report showed a surprising net 3.7M barrel build in inventories, very quickly dropped down to $107.25 in very heavy trading.  Volume was 13,947,500 in USO that day, and it closed at $108.81 after what we at PSW affectionately call "the closing pump" as it happens pretty much like clockwork in the last hour of NYMEX trading (also very suspicious but not as easy to prove).

Once trading halted on 6/25, a grand total of 965,800 shares were traded after hours, causing USO to open at 111.38, a stunning $2.57 jump in pre-market trading. 

Thursday the 26th traded flat on heavy volume (15,274,200 shares) and was still trading at $111.69 at 2pm, one half hour before the close of NYMEX floor trading.  Suddenly, the closing pump was on and a surge of buying pushed USO (and crude) all the way up to close at $113.12 on a 2.6M shares spike, the entire day’s gain made on 1/6th of the volume pouring in during the last half hour.

After NYMEX trading was halted, the price drifted along to $113.03 but the excitement once again came after the lights were out as electronic traders jammed the price all the way up to $115.10 at 7:30 but that was completely unsustainable and USO opened it’s regular trading on Friday the 27th at $113.87, still up .75 on just 893,000 shares (6%). 

Friday, the 27th, was particularly fun to watch as oil traded up and down all day but the price was back to $115.68 before a large seller stepped in to EXIT his position, right into the 2pm pump.  Fireworks ensued and 2.3M shares were traded in that half hour (15% of the day’s volume) but as soon as the seller stopped at 2:30 at $113.45, a fresh round of buyers HAD TO have USO/oil in the next 5 minutes at $114.  The minute the NYMEX closed at 2:35, the buyers suddenly "lost interest" and USO drifted into the weekend at $113.75.

It took just 152,000 shares to get USO back to $116 (up 2%) by 6:45 am on Monday the 30th, and they managed to hold $115.16 into the open on 253,000 additional shares.  Once real trading began, oil and the USO plunged to $113.24 and again, our wise dumper took advantage of the pump crew and sold into the close, closing the day at $113.66 despite mid-day efforts to retake $115. 

11,950,000 shares were traded to arrive at $113.66 but - once the markets closed, there was a bull run on crude, taking the USO from $113.66 all the way to $115.69 on just 409,000 shares (3%) ahead of the market’s open on Tuesday the 1st..  This pump was also unsustainable and USO/oil fell back to $114.59 on 13.2M shares traded.

After hours trading was very light (257,000 shares) into the Wednesday inventory report and Wednesday the 2nd opened at $113.81 but, despite additional builds in inventory, a massive frenzy of trading took USO/oil up $3.03 for the day on big volume (18.1M shares).  This was the only positive trading day of the week as Friday opened flat at $116.79 and closed flat at $116.82 on a shortened trading session.

So, in summary, over the course of the past 5 trading sessions, in regular trading on volume of 66.8M shares traded, the USO/oil gained a net grand total of $0.34.  In the after hours market of those same 5 sessions, on a volume of just 2.92M shares (4%), oil was pumped up $3.36. 

That's 91.8% of the gains being made on 4% of the volume during electronic trading - just another typical week of oil scamming that cost us consumers an extra $77.7 million per day for the $3.70 increase in crude. 

What can we do about this?  Well, for one thing, you can send this to everybody.  The more people watch this sort of thing the more likely it is that we can put a stop to it.  Consider it a sort of neighborhood watch group to take a bite out of oil shenanigans.   

The American people are being robbed by traders who are able to leverage borrowed cash 15:1 to use light, after-hours trading on electronic exchanges to drive up the price of oil consumed by Americans by $544M in just one week, manipulating the market to reflect prices that simply do not prove out in regular trading. 

Congress has been holding and continues to hold an investigation into various speculator practices and we will be delving into those further this week.  This blatant sort of manipulation is just one of the ways that oil price is manipulated by a cartel of speculators who are robbing US and global consumers of Billions of dollars each and every day while funneling campaign contributions to certain corrupt politicians who filibuster or veto well-intended legislation meant to combat the practice.

Only by making the people aware of what is happening, only by waking the voters and removing these "evildoers" from office can we effect real change on this system, which is sucking $460Bn a year out of the pockets of American citizens as oil trades well above the $85 "fair" target price based on the most generous interpretation of supply and demand.  You CAN do something, tell your friends, write your representatives - let them know you are watching!