Philip Davis

The Oil Shortage, and Other Fairy Tales

Lot's of great comments here, I love it when we can have a nice, civil exchange of ideas. CBubble, that is great stuff. I just answered a person on another post as to HOW the price of oil is manipulated and I'll print it here to so excuse the length but this is why the whole thing can fall apart MUCH faster than you think. The housing and .com bubbles were de-centralized events and they fell apart in a de-centralized fashion but the scam going on at the NYMEX that has driven the price of oil up from $30 to $130 a barrel in 5 year can be unwound with the stroke of a pen if they change the regs:

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!

Commodities Prices: Speculation Exposed

I don't know a good site for tracking NYMEX contract volume from open to close but here is the flaw in A's logic (and User 198.. is close to the truth of it) - 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 deliver 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!

Options Trader: Friday Outlook

User 198 - These are just exerpts that SA takes from my membership site. All those details are discussed in the member section and the web site is linked at the top of the page. Those were day trades from the day before, we had long Apple calls that we UNcovered on the dip on Thursday and held naked overnight. BIDU was a call we picked up on yesterday's close that we escaped even this morning.

Well Al, on Wednesday our screens told us to go short on XOM, CVX, SU, USO and HES as oil topped $133 and today we cashed most of them out to give you a chance to buy them back up "on the dip." If it weren't for people like you and Ship Shape, we'd have no one to buy puts from so I'm not even going to try to change your mind. In fact, we even grabbed XOM $95 calls at the close so please, go to town on Monday, we'll be shorting again when you get to around Wednesday's close - have a great weekend!

Options Trader: Friday Outlook

Sweet and Sour Crude Primer:

thefraserdomain.typepa...

Options Trader: Friday Outlook

Actally JR, this guy says it was the Bushes that killed Kennedy: www.jfkmurdersolved.co... - Don't blame me, I'm only pointing you to the correct conspiracy theory - Enron didn't exist at the time.

As to ignorance - Oil, on a global average, cost $40 a barrel to produce. Oil in the Middle east, cost $24 a barrel to produce, all of the rest is mark-up paid by enablers like you who have the very sick attitude that if someone "were any good, you would make a fortune and give a rat's ass about others makin' a killin'."

I'll tell you that it's comments like that which remind me why I do prefer to spend my time trying to make a difference in the world rather than whatever the heck it is you think you're doing supporting this BS.


As to the sweet/sour crude issue, I'd post more links but you don't seem to read the ones I've posted that already refute your statements so what is the point. Obviously, if there were really a long-term supply issue in WTIC (which is sweet crute) then refiners would be doing conversions to make the additional $20 per barrel on the spread but they, like you, know the whole scam is a house of cards that is ready to collapse and only throwing out red herrings like "sour crude refining capacity" can help you justify your position to others at this point.

Like Jjason - I'm as angry as hell and I am doing something about it, we're supporting our Senators and Congressmen and sending them the information they need to take control of this situation. We are doing what we can to make our side aware of all the facts and we are going to push for legislation to change this game.

Last week was just a start, there are proposals coming down the pike that will knock your socks off as the pendulum swings way back on this one.

Options Trader: Wednesday Outlook

That is very impresssive stuff Jack but I get stuck at how you're getting from FSLR's current use of 3 tonnes of tellurium last year (which was 10% of global production) to having free access to 300 tonnes. I have seen nothing to indicate production levels likely over 350 tonnes no matter what the price as the extraction of Te depends on someone first wanting copper.

If you have links I'd be happy to take a look at that IS the crux of my bearish long-term outlook on FSLR (although the fact that their contracts lower prices 20% per year and that Germany may be topping off their own solar rebates are coming in a close second and third now).

My assumption is that even if Te production does somehow increase to 350 MT a year and FSLR grabs 1/4 of it, that's ony enough for perhaps 1 GW at that point. Also - wouldn't it be awful if some other solar company decided to use Te, since it's so fantastic?

Options Trader: Friday Outlook

Sorry you don't like the Bahamas, here's more: complete911timeline.or...

There's actually 132,000 references in Google to Enron Taliban and I just grabbed the first one that summed up the story. Had I known my source was being graded I would have checked with you first.

Yes we have been shorting oil and losing money for years but we also have shorted oil and made spectacular amounts of money as well. The nice thing about shorting oil is the periodic sell-offs that work great for options traders. While we lose $1 here and there shorting XOM at the tops, when it drops $15 (as it did 3 times in the past year) we can make 10X our investment. As a short to hold, oil stocks would be a tough game but as option trades, they are cash machines. Just yesterday XOM gave us an intraday double, then it went up and now we are short the June $95 puts at a basis of $4.30 (we took a loss on the roll up from lower calls). Feel free to sell some of those puts and we'll see who has more money at the end of next week!

Nice article that says 3/4 of US refining capacity can handle sour crude: peakoildebunked.blogsp...

Also, no one is saying we shouldn't open up to more drilling but certainly you can't believe that asking the Saudis to pump more oil is a bad idea. We need the oil now. Meanwhile, here are some interesting maps showing you how much oil is not being drilled in Iraq and Saudi Arabia - why can't we get some drilling done there, on land, where it's quick and cheap to deveolp???

peakoildebunked.blogsp...


I will also say that simply taking away JR's Hummer (because you know he's the type) and regulating a minimum fleet average mpg of 35 vs. the 20 we have now and the 25 we are "hoping" to attain in 7 years would cut 7Mb per day in US fuel consumption once our existing fleet rolls over (7 years). That's a 33% reduction in oil consumption over 7 years at a rate of 1Mb/day per year cumulative.

That's 7 ANWARS worth of fuel per year once we get that job done. Does it sound impossible? Europe has that standard now. Who is the number one auto dealer in Europe? Ford. Number 2? GM... The same exact companies that sell us high-margin gas guzzlers here, sell the Europeans lower-margin fuel efficient vehicles over there BECAUSE they are regulated.

There's no profit in conservation - that's why certain parties fight against it tooth and nail!

Options Trader: Wednesday Outlook

I stand corrected re. the Yuan, it did not occur to me that it wasn't in dollars so that's just the 3,000% increase in price then correct? I'll make sure we fix that fact.


We did short FSLR out of the box, both on the leap I recommended and, ultimately, we took the $320 puts during or morning session (we do live trading on the member site) so we're pretty pleased so far. Today we grabbed the $310 puts for a nice morning double and we'll short them again if they go up again but the leap stays naked, looking for a double over time.

Mark - that ad is a classic! Maybe I should apply and hook them up with Jack Satan, he seems to have some tellurium to unload. I really don't understand why it upsets people to point out a problem with an investment. Yes, I was wrong about the amount per Kg and I will say so but that doesn't change the fact that there is not enough tellurium on the planet earth for this company to fulfill their business model - the one that people are investing in.

Thanks for the forum link Energy!

ISRG was cheap at $300 (it went to $350) and we bought it again at $280 last month and it's still cheap at $290 but thanks for being a long-time reader global!

Options Trader: Wednesday Outlook

If you have other data and can post links I'd be happy to take a look at it.

Options Trader: Wednesday Outlook

Actually my plan to fix the mortgage crisis that I wrote a column on in January has been adopted by Congress and Bush is currently threatening to veto it...

On our main web site we lay out solutions all time and we have a very active member group that should be put in charge of something if you want to get things fixed.

Options Trader: Thursday Outlook

ENER - well some guy (maybe you Expert) paid us $2.25 for the $50 call that expires next Friday. So we don't need to buy the stock, or do anything other than take the $2.25, put on a stop at $3 (if it breaks $50 before the value of the contract deteriorates) and, if ENER doesn't break $5 in 5 days we take it all ($225 per contract) as pure profit.

My risk is $75 and my potential profit is $225 - you should really learn to understand the mechanics of a trade before you criticize it as I would have to buy $5,000 worth of ENR and they would have to make 4% by Friday just to make the same $225 while my risk of a gap down is significantly higher than my risk of a gap up on the call I sold as the stock has to go to $52.25 (up 4%) JUST for my caller to get his $225 back.

This is what we teach at Philstockworld, how to use options to DECREASE your risk and make superior returns. I don't think ENER is a bad stock at all, I just don't go chasing 40% moves no matter how much we love a stock.

Ted: I advise rather than spend $22K on a single contract that is a horribly bad idea (for pretty much the same reasons that I just told Expert you don't chase ENER and note the $90 was the insurmountable barrier), you should spend $49 and spend a month papertrading our picks on my web site. This is not a shameless plug - we really do help people just like you every day!

You are, frankly, lucky you still have .56 of value for a call that's more than 10% out of the money with no expected event. There is no cheap way to "save" this play as the premiums for the other months are ridiculous on V.

The correct way to play this (other than cashing out and moving on) would be to roll yourself down to the $80s at $7.65 (+ $7.09) and sell the $85s for $3.75, which brings the total cost of your play to $1.10 + $7.09 - $3,75 = $4.44 and any finish above $84.44 gets you even. The most you can make on that play is .56 because above that you owe the $85 caller money but it has a very good chance of getting your $10,800 back (assuming you have $88K for the new play!).

Another expensive way to "fix" this is to take the low premium ($2.80) June $80s for $10.10, which will lose approximately .60 of premium between now and expiration and sell those same $85s, which have $1.45 of premium, after which you will "roll" that position to the June $85s, now $7.10 for a net collection of perhaps $8.50 against your $11.20 investment meaning you need a June finish above $82.70 to "win."

There is one other thing you can do but it's risky:

Since you already have the 200 $95s you can sell 200 $90s for $1.52 and 200 $85 puts for $1.52 covered with 200 $80 puts for .38. That puts net $53,000 back in your pocket and you are playing for the stock to finish between $80 and $90 on Friday. You would need $5 per contract in margin to make this trade ($100K) and you do risk that loss (less the $53K you collected) if the stock goes all the way up to $95 or down to $80.

There are about 5 other strategies we teach on our site to save a play like this but mainly we teach you never to put yourself in this position in the first place!

Good luck....

Options Trader: Tuesday Outlook

I wish those links came out. Try using tinyurl.com to create a small link.

Meredith Whitney Threatens Severe Deflation For Your Portfolio

Actually the efficient market hypothesis was put forthe in the 1960s when rumors were not considered news. There is nothing efficient about any wild rantings (including my own!) being treated as "information" by the market. Surely the wild swings in stocks like C, APPL or GOOG is proof enough of this, there is no efficiency to Apple going from $200 to $120 and back to $200 over 4 months over nothing but a spate of rumors that turned out to be unfounded.

All the efficient market hypothesis really states is that there is no profit to be made by using existing information to price a stock as, in theory, the stock is already priced "to perfection" based on the available information. Whitney's comments were not information at all, they were wild speculation with only a whisp of reality to make them seem plausible - what was efficient was either ignoring here if you already had the stock or jumping in (as we did) on the sell-off as the sheep who follow her kind of nonsense routinely jump out of planes without a chute.

Options Trader: Monday Outlook

As indicated in the link, I'm going by usually reliable Briefing.com list but Kskee is right, nothing confirming on SIRI web site and last earnings weren't until 2/26 so May 27 does make sense.

Options Trader: Thursday Outlook

We're back up on main site!