keenstyle1's  Instablog

               Last year, when oil prices were at about $140 per barrel, various conspiracy theories were floated about the reasons for the surge. The media outlets  then interviewed tons of annaylists who argued that the price spike stemmed simply from the forces of supply and demand. Even Rick Santeli from CNBC argued against the speculation therory. The truth has always been that hedge funds were all on the same side of the market running the price up for their own profits. After high gas prices evaporated the nations "stimulus checks" given out by the Bush administration, there was enough pressure to launch an investigation, which they are just now telling of the outcome. You may rememer immediately after the investigations the oil market then zoomed down to it's real fundamental price of $34 a barrel. At the time if you were into commodity trading you could of shorted the market from 140 to 34, 106k per contract!

    In any case The CFTC is now admitting the power that managed money brings to the market and affecting the economy.

    This is why financial channels have no credibility, and the reason people who watch them loose money.

  Some of the biggest commodity ETFs and ETNs are soon to not issue any additional shares. This is a joke and a flaw in the creation of a lazy financial instrument created by geniuses who wanted to offer commodity trading to mutual funds and private clients that were too lazy or scared to trade the actual derivative. It was predicted at one time at the creation of these derivatives of derivatives of commodities were going to replace commodity and financial futures. Well the CFTC doesn’t want that stupid! These markets were made for bonified hedgers and educated experienced traders, not lazy mutual fund managers who want to book commodities into their portfolio.
   The CFTC really is killing two birds with one stone investigating ETFs which is supposedly why they aren’t issuing more shares. In order for the ETF to continue issuing it has to continue buying the physical commodity. No matter what the all time dullest financial media puppet Bob Pisani says, this is  a great alibi for the CFTC not to have to tackle the real problem of Hedge Fund’s herding individual commodity prices via their invisible OTC trading.

Rick Santelli On Oil Speclation


The above was Rick Santeli last year and some analysts arguing wheather speculators were driving up the price of oil. Both of them are wrong due to the fact that they are debating speculation in the regulated market on the floor of the NYMEX. Remember when oil got to $150 per barrel during President Bushes stimulus check packages. It was then that the CFTC issued an investigation. Oil then retreated from $150 to $36 dollars a barrel.  I can’t believe the number of analysts consistently throwing out numbers and percentages in regards to oil stock inventories and consumption. Demand is down, production is up somehow the financial news outlets continue to spin for reasons the price of oil is on the rise.
Yes speculation brings liquidity. Yes speculators make up 70% of the market. But is that what drives up the price? No. Rick is right, these traders exit their positions before settlement of the contracts, or roll over to the next month.
   
     The Price is being driven up by the unregulated  muti-trillion dollar OTC electronic market. This trading is once only available to certain buying and producing corporations is now sold as an asset class to Hedge Funds and Commodity Index Funds. With the OTC market there is no limit on the number of contracts a fund may hold. Further more it is not reported to the Commitment of Traders Report. Why would the CFTC allow such trading to be developed? Well, initially it was meant for fortune 500 companies whose hedging practices could be disrupted by scalpers (such as many of us) on the floor. I know a trader on the floor of that trades the S&P once a month. He waits for Merrill Lynch’s representative broker to dump their S&P contracts at the end of every month. He then shorts the market and takes his profit. Several other brokers use the same technique. So what if General Mills was trying to secure their price with wheat and oats, or Nestlé with Cocoa. The commodity brokers have a hand on these markets and can throw of structured hedges necessary to forecast earnings. The OTC markets were developed to decrease exposure for these institutions in-turn creating a true man behind the curtain scenario. The situation intensified after the installation of ICE futures in the U.S. More un-regulation and disinformation on positions related to prices.  

    So now with a daily chart overlaid with a parabolic we can all see where and how heavy the Funds are herding the commodity market, no matter what the information the starved news will tell you. A trading practice that all successful traders are living by. Today’s fundamentals are flawed and full of miss and useless information, not to mention truly boring information from boring people. If there are more buyers entering the market, were going long, even if Bloomberg’s goons for the day try and predict oil stocks, or a future move by OPEC. Who cares, seriously.