Oil Markets, Speculators, and Vitol Group's Controlling Stake 24 comments
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Can you imagine having control of nearly $8 billion worth of oil – over three times the amount of oil that the United States consumes daily? One trader knew that feeling this year, as a single energy company held 11 percent of all contracts on the New York Mercantile Exchange at one point last month. Vitol Group is a Swiss energy company which was identified as the controlling entity, and the Commodity Futures Trading Commission [CFTC] reported that the company would be best described as a speculator in the energy markets.
As oil prices rose dramatically during the first half of this year, congressional leaders, economists, and business leaders from across the country were quick to blame speculators in the energy futures market as the cause for the price appreciation. As the price of oil has dropped over the past two months, the debate over speculators potential influence in energy markets has also diminished. The news of Vitol Group controlling a large number of contracts brings back this debate, as a single energy company accountable for speculative bets in the market, was responsible for a large controlling stake in the oil futures market.
Vitol has amassed futures contracts equal to 57.7 million barrels of oil by June 6, valuing the holdings at nearly $8 billion that day. Regulators believed that the Swiss energy company's role in the markets consisted of assisting industrial companies in acquiring the oil they needed. The report by the CFTC however, stated that Vitol Group would be best described as a speculator, or one who was mainly concerned with making profits through the trading of contracts, rather than from assisting companies in the delivery of contracts.
The CFTC's report did not include the amount of capital which was used as collateral for Vitol's contracts. The Nymex allows traders to purchase contracts using margin, or by borrowing funds to use in the purchase of contracts. The amount of collateral which is needed to purchase contracts, or the margin requirement, is sometimes as low as 10%. This is compared to a much higher initial margin requirement of 50% for equities.
The move in oil markets over the past year has represented fundamental changes in the supply and demand for crude oil. Price appreciation of oil during the past three years has been the effect of large increases in demand from global expansion and similarly, demand destruction as the result of high oil prices led to price depreciation in the past two months. Conversely, speculators have had an increasing role in the energy market's moves, exacerbating price movements in both directions.
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This article has 24 comments:
To further your education in the financial markets, strongly recommend you read 'BEYOND OIL' by Kenneth F. Deffeyes and do a Google Search on Queuing Theory developed by Suzy Sachs as both have relevance to the the Commodities Markets.
1-this 8 billion$/3 day inventory of futures, was it all near in months? or spread across the multiyear strip?
2-were there other enterprises holding similar volumes/values? how many enterprises and how close in size? how typical/unique?
3-from whom purchased? the previous owners must have had different view of market, lest why sell?
4-in current market[now,tomorrow] are there any similar enterprises with similar size/quantity holdings?
5-how typical was such a holding over past 5 to 7 years? always, never, last ywo years?
6-does GS hold positions this size[% wise] in any asset class . ever?
7how/why this oil commodity play different from big momentum play driving GOOGLE price from $300 to near $700[now back to $400+]
8- now that oil price down, why the reduced interest? pandering??
CLARIFICATION REQUIRED!
2 - The CFTC reports weekly information for each exchange - report for July 10 states that 4 or less traders held 26.4% of the gross open interest positions and according to reports Vitol held ~11% - leaving ~15.3% for 3 or less traders. Feel free to compare this to the other weekly Commitments of Traders reports at cftc.gov
3 - Feel free to ask Vitol Group.
4 & 5 - Again, feel free to compare this to other Commitments of Traders reports which date back to 1986.
6 - Feel free to contact GS and ask about their individual fund's positions.
7 - The only way that question could possibly be relevant is if you were to discuss general speculative/growth movements in price - much less security price movements in two completely different asset classes.
8 - Possibly because the CFTC began to investigate and also changed their status to a speculative member - therefore imposing greater position limits by the exchange.
Those US$100 billion can be use to save the planet & make it greener...
What was not mentioned, is what might have been their positions also at the same time on the ICE and on the OTC, nor any swaps they might have holding. Granted, I am 'speculating' as I don't know for sure what amounts they had, but it stands to reason that a player this size would be involved in more than just one of the trading exchanges.
However, the more interesting part of the CFTC's action is that they picked a foreign firm to rat out and offer up to Congress, the media and the American Public just to insure us that they are officially doing their job. They have so far, it appears, turned a blind eye to the two firm's that have been controlling I believe even larger percentages. The glorious American WS firms of GS and MS, who are on the 'advisory board' (of the CFTC) that is suppose to be looking into this matter.
Knowing that these two firms positions were huge, and while they might look clean on the NYMEX, if you add their entire Oil Commodity holdings all together -swaps, OTC, ICE, NYMEX and live inventories for 'investment purchases' (?) - I wonder what they were as recently as June? I think that they have been controlling something in the neighborhood of 25-30%, each, of the world's oil by way of futures and other holdings and positions along with management of client's holdings. Geez, how could prices rise so dramatically and so decoupled from REAL S/D Fundas under such circumstances? [Note: don't say, yes but look at the recent decline. Listen, the decline was due to some hedge/pension fund managers coming to their senses and getting out starting in mid-June as they saw the damage being done...but there is still a lot of spec passive long money keeping the oil and gas market it propped up at present at $115. Oil truly should be in @ $80 at present with the current geo, weather and dollar situations.]
How many of you noticed how the fair headed wonders seemed so awfully determined last week to spark another oil price rally. They pushed the traders, CNBC and the 'rest of the herd' to bid up the price of oil back towards the $149 mark in the next few weeks by placing some action lead off by their 're-iteration' of their previous "analyst's reports" (second time since the drop got underway, an indication that not BELEIVED!)...Kind of makes you think that they just might have some futures coming due in Oct. or Dec., that they placed in April, May or June in the range of $150 that they are in great need of getting covered....
BTW, Congress is not however kooled down on this matter...they are in recess. The Republicans, led by the WH gang, in an effort to protect the aforementioned firms from the ravages of REAL CFTC scrutiny, hurried to tie the new Commodity Act to the Energy Policy Debate in a effort to stall its passage. Wonder why, the ACT, in and of itself is a good thing to protect us all. Head that GS was running through the offices of Congress lobbying very heavily in June and early July so as to try and stop the bill. They sure did get CNBC to back away from being forthright in its look/see/comments on the Commodity Act. Shamefully, they, being Republican Front Men for “Big Business”, chose to downplay it.
Was the Rep. linkage/stalling maneuver an attempt to protect these advisory board members? Was the fact that the CFTC put out that stupid "interim Report" a ruse to through off some members of Congress and the American Public.
Hmmm!!
Although prices are now down I am still convinced this increase in gas prices and oil is a direct result of business manipulating the exchange by virtue of Vitol and 3 other companies on 33% of the oil contracts on the exchange in early June.
As a country we have very tight regulations about which companies can own telecommunications, specifically phone lines. However, when it comes to the country's most valuable resources, oil, we have little to no regulation regarding the trading of contracts? Does this make sense? You can buy a 10 to 1 ratio of contracts on margin with borrowed money. What if for some unforseen reason the company that buys on a 10 - 1 margin is unable to complete the transaction on delivery date? What if that company has a 1 billion barrels of oil to take delivery of and it cannot?
Fact is why is it that the regulators have not looked in this ridiculous practice of trading on such gratuitous margins? You would think given the fact that oil is now closely linked to the dollar and that it has more or less become a national security issue that tigher oversight of trading these contracts would be in the works. Yet we here nothing about it. Porbably has nothing to do with an administration that has always been closely tied to major oil companies.
Fact is, conspircacy theories aside, to audit this activity would potentially yield some disturbing trading patterns. Further, I would have to agree with an earlier post here that the recent decrease in oil is primarily attributable to this speculative trading and more importantly the extent of it being exposed. Now the robber barrons are doing everything they can to reduce the price of oil gradually so as to allow the general public to believe it is nothing more than the laws of supply and demand at work in a free market economy. Yet even as the prices retreat we still see a $6 fluctuation in prices in a given day. That truly smelss like the greedy not being able to stay away even after being caught.
No, what needs to happen is an investigation into how 3 companies can amass such a an incredibly huge position on what amounts to the nations most important commoditiy ( important as it relates to the dollar and our overall econonmy). This administration has paid back its debts 10 fold to the oil industry at the price of the american public's wallet.
Daniel, I would continue to follow this with ferver as I firmly believe it is what it is. This administration will leave office with oil on there hands.
On Aug 26 08:54 PM User 251500 wrote:
> Even if the crude oil speculator have stopped jacking up the crude
> oil price, we should not left off the hook. We shall SUE the crude
> oil speculator. It shall be a class action suit. We should demand
> a US$100 billion damage. They should pay for what they had done to
> the world economy/food price...the increase hunger...rioting...air...
> are going bankrupt...increase unemployment...etc.
> Those US$100 billion can be use to save the planet & make it
> greener...
www.etfresources.com/a...
There is a lot of stuff more up to date on the site than this.
On Jul 01 05:21 PM Kelli wrote:
> seekingalpha.com/user/...
>
> www.etfresources.com/a...
>
>
> There is a lot of stuff more up to date on the site than this.<br/>
On Jul 01 05:07 PM Kelli wrote:
> So what is the deal with oil speculation now? <meta name="robots"
> content="noindex">