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  • Brent Crude Market Sends A Different Signal [View article]
    In my view, the presence of market intermediaries ensures volatility, and the amplitude of that volatility depends upon the amount of leverage available in the market.

    I think that the current state of oversupply, and the fact that a significant (but opaque) amount of Chinese buying has been for reserves, rather than refining, means that the market may be softer for longer than investors expect once the current spike has dissipated.

    As for your point about sizeable managed short positions, in my analysis these represent the visible exchange-traded legs of the 'prepay' sale & repurchase agreements which have been instrumental in creating a two tier (false) physical market through a 'Dark Inventory' of oil which is not in the ownership of those the market presumes.
    Mar 2, 2015. 01:33 PM | 1 Like Like |Link to Comment
  • Brent Crude Market Sends A Different Signal [View article]
    It makes complete sense once you realise that the Brent Complex has been completely rigged for a dozen years or so. The result of this has been that the inflow of investor money enables those responsible to support the price in a similar manner to the way that Hamanaka was able to support the copper price on behalf of Sumitomo for a decade.

    For most of this period - interrupted by the trade credit freeze in 2008 and the collapse of the oil price to $35/bbl from $147/bbl - the capital inflow has been of 'passive' inflation hedging money using index funds and ETFs.

    This money has now finally understood that inflation ain't coming, and flowed out in search of yield, and the ending of QE - which provided necessary liquidity - coincided with the collapse of the bubble to $45 to $55 per barrel, as I predicted in early 2012 it would post QE (albeit I did not think that QE would be continued for as long as it was).

    The recent brief flat WTI Brent spread marked a finally de-financialised market. But what we have now seen is a flow of risk friendly speculative money which is actively seeking transaction profit rather than passively aiming to avoid loss.

    Further evidence of this financial physical oil buying by ETF investment bank counterparties - which involves investment banks buying spot physical Brent/BFOE & selling forward physical (ie 'borrowing' physical oil) - is that the March/April physical Brent/BFOE spread (not the futures market, where March expired mid-Feb) is in backwardation at a time of oversupply.

    The outcome of this influx of ETF quasi-equity is the lunatic WTI/Brent spread we now see.

    I recommended to the UK Parliament's Treasury Select Committee at a hearing in July 2008 that a transatlantic commission of inquiry between the US CFTC and UK FCA should investigate the Brent/BFOE market in the public interest.

    The operation of this market in the last decade has seen probably the greatest commodity market manipulation the world has seen, and probably ever will see.

    See also my recent article in 'The Conversation'
    Mar 1, 2015. 12:37 PM | 2 Likes Like |Link to Comment
  • If Oil Prices Are Surprising, Then That Can Only Mean Demand [View article]
    Feb 20, 2015. 12:25 PM | Likes Like |Link to Comment
  • The Fiscal Theory Of Monetary Expansion [View article]
    Interesting analysis, but I think there is a fundamental error in terms of the nature of the Treasury/Central Bank legal and financial relationship itself and the nature of modern money.

    Turning your thought experiment on its head, let's assume MicroBank is winding up its affairs.

    It has $1m in share capital and $1m in assets, which consists purely of modern money (aka cash) on demand deposit with the Central Bank aka an overdraft from MicroBank to the Fed, using your terminology.

    It also has one remaining term loan outstanding (account receivable) of $10m with Borrower X due tomorrow and on the other side of its balance sheet it has a $10m term deposit (account payable) by Depositor Y also due tomorrow.

    Tomorrow duly arrives, and Borrower X transfers $10m from his checking/current account with Bank A, to MicroBank's account with the Fed, and MicroBank duly dispatches that amount to Depositor Y's checking/current account with Bank B.

    The result is that the term loan from Borrower X to MicroBank and the term loan from Depositor Y to MicroBank are thereupon settled - BUT THE $10 MILLION IS NOT EXTINGUISHED AND REMAINS IN EXISTENCE having simply flowed from Bank A's account at the Fed to Bank B's account at the Fed via MicroBank's account with the Fed.

    MicroBank then distributes its $1m in capital to its shareholders by transferring its reserves out of the MicroBank account, which is thereupon closed, to the shareholders, checking/clearing accounts at other Banks. This $1m of modern money also remains in existence of course.

    So if modern money is not bank credit which is extinguished with the loan (as it was in the days of free banking) then whose credit is it?

    In my analysis you are - as does the Fed 'balance sheet' itself, which is like no other entity apart from that of other Central Banks - conflating as 'liabilities' of the Fed, two completely different obligations. These are firstly, undated credit instruments and secondly, 'for a term certain' dated debt instruments aka accounts receivable and payable.

    In my analysis, the Treasury is not and never has been an accounting counter-party of the Fed so that a Fed credit is reflected by a Treasury debit and vice versa. The Fed is often described as the 'fiscal agent' of the Treasury and in my view an agent - in legal terms - is precisely what the Fed is. ie the Fed creates and issues credit on behalf of its principal, the Treasury, so that a Fed credit is reflected by a Treasury credit and vice versa. This is self evident when you see that US 'Greenback' Treasury Dollar Notes spend exactly the same as the Federal Reserve Dollar Notes created by the Fed as the Treasury's fiscal agent.

    So when the Fed spends it creates virtual credit obligations - Treasury credits returnable in payment of taxation - as the agent of the Treasury and it registers title to these instruments (as would a warehouse with tangible goods or commodities) on a memorandum account exactly like any other agent on behalf of the recipients.

    I believe that the true Dark Heart of the current modern monetary system is the reality that when banks create credit/modern money and 'lend' it on what you term an overdraft to the Fed what they are in fact doing is creating not bank credit, but rather a 'look-alike' of Treasury credit which is indistinguishable from that created by the Fed.

    Commercial banks are not lending this money to the Fed, but are in fact depositing it, not for a (dated) term certain, but for an undated & indeterminate duration (on call or on demand). This is exactly as one would deposit any object with a custodian, and this demand deposit is recorded with a memorandum book-keeping entry akin to that recording (joint stock) share capital, not by an account receivable as with a term deposit.

    If we hark back to the accounting system pre-dating double entry book-keeping of split wooden tally sticks - with stock and counter-stock portions - there were two types of tally. There was the Memorandum Tally -which recorded a receipt for PAST value transfer (proof of payment/work cf Bitcoin) and then there was the Loan Tally, which recorded a promise of future value transfer. That fundamental qualitative difference between completely disparate types of obligation remains to this day but is obscured by smoke and mirrors.

    If I thought a Treasury (or Treasury Branches as in Alberta in the 30s and President Lincoln's Greenback dollar issuance) were necessary in an age of direct instantaneous connections, then I would suggest that Treasury Branches should create and issue whatever credit is necessary in the economy.

    They could do so under the management of service-providers-form... who would cover costs, with a performance based payment above that. The Fed would have a purely supervisory role as Monetary Authority (not dissimilar to Hong Kong, albeit the HKMA manages commercial bank credit issuance) setting parameters for the banking service providers.

    In this model, banks would no longer either create credit ex nihilo as now or take the risk of term loans on their balance sheet. The risk could be shared mutually as between trade buyers and sellers (unsecured credit) and lenders and depositors (secured credit) along precisely the same Protection and Indemnity (P & I) Club model which has for 140 years mutually insured global shipping risks which Lloyds of London would not assume.

    But the truth is that national Treasuries are no more necessary as risk intermediaries/credit institutions as banks themselves.
    Jan 6, 2015. 02:38 PM | Likes Like |Link to Comment
  • This Is What Will Really End OPEC [View article]
    Why would Iraq produce any more oil than is necessary to keep the market supplied at the upper 'seller's market' boundary price where demand gets destroyed?

    Sure they might develop their capacity to produce: but actually pump the stuff...not so much.
    Dec 15, 2014. 08:47 AM | 2 Likes Like |Link to Comment
  • Will Oil Price Decline Be The Trigger For A Larger Global Economic Slowdown? [View article]
    Oil price decline reduces the extraction of economic rent by oil producers from consumer nations.

    Temporarily removing this drain on the productive sector of the global economy can only be good for the global economy, but not so good for the essentially unproductive bauble and bling industry which serves the elites in control of oil resources.
    Dec 7, 2014. 09:18 AM | 2 Likes Like |Link to Comment
  • Consider Crude Oil Now [View article]
    I do not recognise the global economy in which you live.

    In my view we will see $60/bbl before we see $110/bbl again.
    Oct 11, 2014. 09:28 AM | 1 Like Like |Link to Comment
  • Saudi Price War, But We Still Like Oil Here [View article]
    If the Saudis were to have any effect on this market they would have cut production significantly two months ago. As it is, we're a lot more likely to see $60/bbl before we next see $110/bbl.
    Oct 6, 2014. 09:18 AM | 1 Like Like |Link to Comment
  • The People's Republic Of Scotland [View article]
    Interesting article but I have a few quibbles.

    Firstly, the referendum questions and who qualified to vote were agreed by both governments, so please do not accuse a Machiavellian SNP!

    Many observers here believe that if Cameron had opted for a third 'Devo Max' question it would not only have been accepted by the SNP but would also have won by a landslide. IMHO Cameron is guilty of one of the greatest misjudgements in UK political history by taking the decision he did.

    Secondly, Jim Sillars and his 'Day of Reckoning' is as relevant to mainstream SNP thinking as (say) Bernie Sanders is to the Democrats. ie not at all, as the embarrassingly biased UK Press well know.

    My forecast is that Yes will win - and win handsomely - on Thursday because hundreds of thousands of long disillusioned Labour voters (who feel like I do that Labour left me, rather than vice versa) are parting company from the useless Westminster Labour hierarchy in search of better Scottish policies.

    In an age where the ideology of the Left died with the fall of Communism and the ideology of the Right died with the fall of Lehman Brothers there is now a policy vacuum opening up which Scotland is uniquely well-placed to fill. That's why I look forward to Friday morning with both hope and expectation: that is when the work begins to build a networked economy from the ground up in Scotland.

    And as a matter of interest, there are better ways to skin the currency cat than the SNP's out-dated bank-centric thinking.
    Sep 16, 2014. 09:51 AM | 2 Likes Like |Link to Comment
  • How To Annoy A Peak Oil Theorist: The Soft Patch In Oil Prices Is Here To Stay [View article]
    No mention of the most important factor of all: demand reduction & substitution cased by high prices of marginal production.

    The cheapest carbon fuel of all is carbon fuel saved. Absent a new financial market paradigm expect continuing booms and busts.
    Sep 14, 2014. 08:53 AM | 2 Likes Like |Link to Comment
  • Cushing Drawdown Not A Concern For The Oil Market [View article]
    If WTI is in backwardation there is no reason for traders to store it and every reason to refine it asap.
    Jul 25, 2014. 08:45 AM | 1 Like Like |Link to Comment
  • Planning For Future Rate Hikes: What Can We Learn From History? [View article]
    Money has no cost: Credit has a cost and Capital has a price.

    Any attempt to increase $ interest rates without increasing the purchasing power of the 99% will collapse the economy
    Jul 6, 2014. 08:48 AM | 1 Like Like |Link to Comment
  • Oil Supply Overflowing [View article]
    Brent continues to be manipulated. A handful of cargoes control the price.
    Nov 28, 2013. 09:26 AM | Likes Like |Link to Comment
  • Iran Oil Outlook (Part 2): How Iran Stockpiles Oil And Hides The Fact [View article]
    I admire your energy and imagination Alex but it bears no relation to the facts.

    I've been to Iran seven times, most recently in May this year, and I have had good access to the highest levels of the oil and gas complex. Now under the new government I could not have better access.

    For crude oil producers, strategic reserves are oil left in the ground, but it is true that they do tend to maintain some buffer stocks, typically no more than a couple of weeks supply..

    I have some direct knowledge of Iran's storage. Yes, they perceive that increased buffer storage is necessary, since there is a limit to the number of tankers they have available for floating storage.

    They have contracted at least one conventional concrete storage installation (I know the original contractor personally), but it really is de minimis - eg by comparison to South Africa's Saldanha Bay - and has been held up by corruption issues and mis-management for six years to my knowledge.

    Your entire article lacks knowledge of the realities on the ground in Iran and the catastrophic management and governance vacuum that exists there.

    Finally, why on earth would Iran dump oil on the market knowing that if they did so they would almost certainly end up selling 2m bpd at $50/bbl and end up with less cash than through selling 1m bpd at > $100/bbl?

    They're not a charity, you know.
    Nov 16, 2013. 08:43 AM | 1 Like Like |Link to Comment
  • Crude Fundamentals Continue To Point Down [View article]
    Is a refiner hedging crude oil purchases through being long crude oil futures also speculating?

    Not unless your position is that futures contracts are by definition 'speculation'.

    Crude oil futures positions held by index fund and ETF investors are for the most part motivated by 'inflation hedging' aimed at avoiding loss, rather than make profit.

    My point is that these investors do not have speculative motives whatever the market risk they are running. They have been mis-sold market risk on a heroic scale by the investment bank swap dealers we see are on the other side of the trade but are themselves backed off against producers.
    Sep 21, 2013. 05:05 PM | 1 Like Like |Link to Comment