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ChrisJCook

ChrisJCook
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  • Oil Supply Overflowing [View article]
    Brent continues to be manipulated. A handful of cargoes control the price.
    Nov 28 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 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 05:05 PM | 1 Like Like |Link to Comment
  • Crude Fundamentals Continue To Point Down [View article]
    A couple of points.

    Firstly, any private sector holder of inventory will sell it in a backwardation, and boy, do we have a backwardation, not because of prompt demand, but because of forward selling to lock in margins.

    Secondly, I don't think 'speculator' - which in my analysis is an investor looking for transaction profit - is a good descriptor of most of the 'long' investors in the market.

    What we see here is mainly 'passive' long-only investors - eg index funds and ETFs - which investment banks used to deal with OTC, but which are now all on-exchange and hold long positions which are matched by a large part of the swap dealer short positions.

    The investment banks have essentially shut down that part of their business, put all the risk on-exchange in a single point of failure, and left it to God and Providence.
    Sep 21 10:25 AM | 1 Like Like |Link to Comment
  • Crude Oil Inventories Drop Again [View article]
    When crude oil is in backwardation commercial interests have no interest in storing it, and they either sell it, or refine it, and get the best price for the crude oil or product they can

    It's not difficult.
    Jul 25 08:24 AM | 1 Like Like |Link to Comment
  • Record Speculation On Crude [View article]
    I omitted on this occasion (sorry about that) to mention index investors, who were of course the first in this game courtesy of GSCI and the long partnership/collaboration between BP and Goldman.

    ETFs came later.

    Of course oil and gas are two different markets - I architected the UK natural gas balancing point futures contract so I know something of natural gas.

    But natural gas prices have not been historically linked to oil prices for no reason.

    There are essentially two trend lines in all commodity markets: there's the lower boundary buyer's market at which production gets locked in, and then there's the upper boundary seller's market at which demand gets destroyed.

    Whenever they can - ie when they have the leverage - producers will always attempt to hold the price at the upper bound. That is precisely what has been happening due to the entry into the market of long only funds, firstly Index funds (as you say) and then ETFs and ETPs.

    These 'passive' inflation hedgers essentially contribute to the very inflation they aim to avoid.

    When such passive funds come to dominate a market they destroy the price formation of that market, and they turn the forward curve into a reflection of the $ yield curve (provided interest rates remain at the Zero Bound).
    Jul 23 02:06 PM | 2 Likes Like |Link to Comment
  • Record Speculation On Crude [View article]
    My take is that what we are seeing is that massive off-exchange prepay contracts between the Saudis and JP Morgan - which were backed off against 'muppet' investors in crude oil ETFs - have essentially now been brought 'on-exchange' pending liquidation.

    The price risk of a market price discontinuity (think Tin Crisis 1985) is therefore now concentrated in a single point of failure also known as a clearing house

    We are in the end game of perhaps the greatest market manipulation the world has ever seen - which makes Hamanaka's 10 year copper manipulation for Sumitomo look like a car boot sale. Essentially this has been an extension of the Saudis' post 1973 petrodollar pact with the US, to the effect that crude oil has since 2009 been pegged with a collar at levels politically acceptable to the Saudis,and a cap at levels politically acceptable to the US.

    The crazy WTI/Brent spread has been prima facie evidence of a market manipulation price bubble maintained over years by the usual suspects using the completely dysfunctional Brent benchmark. This support was made possible with the support of leverage provided by the risk averse 'passive' investors who were sold on inflation hedging using ETFs and ETPs by investment banks.

    The other prima facie evidence of the bubble now about to end has been the divergence of crude oil and natural gas prices, and I believe that this is about to correct.

    Note in Paulo's very useful chart the Curious Incident of the Speculator in the Night-Time. ie the complete absence of 'speculation' in 2008 - whether active investors or passive investors - during the biggest price spike and dump ever seen.

    Once the Iran risk premium ends - and believe me, the new Iranian government will be completely engaged in ensuring that it does - then Brent will at last lead the market down.

    How fast that descent will be is an interesting question.
    Jul 23 09:51 AM | 1 Like Like |Link to Comment
  • Crude Oil Inventories Continue To Plunge [View article]
    If you can fund it and make a real return, then you hold it.
    Jul 20 08:39 AM | Likes Like |Link to Comment
  • Crude Oil Inventories Continue To Plunge [View article]
    Q. When the forward market price is waay below the spot price (super-backwardation) what do you think private owners of inventory do?

    A. They get rid of it.

    It's not Rocket Science.
    Jul 18 08:34 AM | 1 Like Like |Link to Comment
  • Why We're Short Oil [View article]
    Well, actually, it wasn't hedge funds running wild on that occasion, it was an investment bank. You only have to check out the COT report to verify that hedge funds were not in the market.

    Hedge funds only ever have a short term effect, and may spike the market up or down. It has been the participation of 'inflation hedgers'- who are long only and motivated by fear, not greed - which created correlated bubbles, punctuated by the odd event-driven hedge fund spike.

    Inflation hedgers have finally cottoned on to the fact that there is not going to be any inflation beyond that which they cause when trying to avoid it. Their money has therefore been flowing out of ETFs and ETPs in search of yield, into stocks and buy-to-let property.

    It's true that hedge funds cause volatility, but after the market casino's house take the markets are a less than zero sum game for them.
    Jul 14 09:44 AM | Likes Like |Link to Comment
  • Oil Supply Shock Will Drive Prices Down [View article]
    MOC 'micro' manipulation is just another zero on the market roulette wheel. It does not affect prices in the medium and long term.

    What does, and has for maybe 8 years, with a 9 month hiatus, has been the funding by passive inflation hedging investors of crude oil held by producers. Instrumental in this has been the opaque use of prepay contracts, and the creation of a Dark Inventory of crude oil in the custody of producers who have pre-sold the economic interest to 'muppets' through the good offices of investment banks.
    May 21 09:50 AM | Likes Like |Link to Comment
  • Interest Rates - A Ticking Time Bomb [View article]
    Monetary stimulus can only stimulate asset price inflation.

    Only fiscal measures can stimulate retail price inflation, and in fact we are seeing the reverse of that, as firstly, barking mad austerity measures bite, and secondly, a secular ICT/automation productivity trend puts increasing numbers of the middle class into McJobs at best and no jobs at worst.

    The 300 year paradigm of debt-based finance is over.
    Mar 29 12:10 PM | Likes Like |Link to Comment
  • Brent Crude And WTI: When The Same Thing Becomes Very Different [View article]
    @Alex_G

    The culprit is macro manipulation of the increasingly dysfunctional Brent/BFOE price.

    If the history of commodities tells us anything, it's that if producers can support a market price with borrowed money, then they will.

    For the last few years producers have been able - via the good offices of investment banks using prepay instruments - to support the physical Brent/BFOE price at the upper bound where demand gets destroyed rather than at the lower bound where production gets locked in.

    The producers have made out like bandits from the resulting 'super-rents' , and the investors who made this possible by providing the funds are Goldman's 'muppets' who through buying oil ETFs to 'hedge inflation' have thereby caused a bubble, and the very inflation they sought to avoid.

    All bubbles come to an end eventually.
    Mar 21 01:07 PM | Likes Like |Link to Comment
  • Are You Expecting Oil Prices To Fall? [View article]
    The market is being supported - as it has been since early 2009 - through manipulation of the completely discredited and dysfunctional Brent/BFOE benchmark.

    If buyers, particularly the Chinese, merely paused their programme to fill reserves the price would collapse overnight to and temporarily through $60 /bbl.
    Feb 24 09:57 AM | 1 Like Like |Link to Comment
  • Commodity Chart Of The Day: Crude Oil [View article]
    I think that that a put option strategy on the Brent/WTI spread could be a smart move.
    Jan 2 07:54 AM | 1 Like Like |Link to Comment
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