The Crude Oil Crises 2008 was real or a market manipulation?
Dec. 2008 when the price touches the $147 every one was shocked and suddenly the prices dropped down to $34 and after this again today the price reached to average of $70-$80.Now try to understand the rationale behind of it, the reason given by some of the people was that demand and supply gap of the crude oil as the demand was increasing and the supply was not up to the mark. Who is having the main influence in the supply side the answer is OPEC countries. OPEC countries increase its production when the price goes up and vice versa. But if you look at the production of the crude oil by OPEC countries, they continuously saying that there is no reduction in the supply of crude in the market and even sometime the supply were over the demand. Some are saying there was a threat of war between the US and Iran but at the same time Saudi Arabia is able to meet the demand in the case of war to meet the demand and supply gap. And no confirmation was there about the war. Is it really the main reason behind of it? Think again?
How is the price of the commodity determined in the exchange?
The basic method is the Buyers and sellers bid to buy or sell the commodity when it matches the contract got executed. Now relate the situation to the Enron case to the case of 2008 crude oil crisis. When the price of the crude oil touches the resistance level of $100 people thought that according to the technical analysis price of the crude will come down so at that point they started selling the crude oil contract in paper market and willing to buy it back at a lower rice in near future but market deceived them and the prices further increases and they speculator thought that probability is higher others also start following the same fundamental and sell the contracts in the spot market and do the contract for buying back in the future date.
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Now the time came when all of these contracts got mature but the prices did not come down. The prices was raising the physical crude buyer stop buying the crude and the price should go down because the prices were all time high and according to the exchange the price can be determined when the buyers and sellers ready to buy or sell the crude at a particular price but buyers were not ready to buy the crude because it is good to switch to other source of energy and use the strategic reserves. Buying the crude at higher price means increase in the deficits of the country, cost of the other sector using the refined product such as motor sprit gasoline will go up the cost of production and the transportation cost will increase so government try to reduce the consumption but the prices were out of the reach but it was not the actual thing the supply was enough to meet the demand. Then who were those people who are still buying the crude at that higher price. Think again those were speculator who had taken the opposite position and they have to buy the crude to square-off the position. They have to buy it from the spot market to supply those which they had sold in the past, whether it is $120 OR $147. These are the only buyers who are actually buying the contracts on the higher prices to square-off their positions which keeping the prices still high. This buyer buys and got bankrupt and suddenly no buyer left who have to square-off its position so the market force shift towards the sellers and suddenly the prices start declining, all those who used to trade in the exchange lose their confidence or had no money to trade further . Because of low volume and no buyers the market sentiments got affected and the prices came down to $34. Now the question comes who was keeping the prices high when the price cross the $ 100 or $120. Is it not looks like a manipulation of the market? Derivatives which are used to mitigate the market risk actually creating the volatility in the market and easily got manipulate by big players. Because a small buyer cannot drive the market it requires the volume that can be done only by the big players. These capitalists having the power to manipulate the market and influence on the regulatory bodies there is no body who can stop them. So the derivative market is become a puppet of the elite class people. Is it not true that US crises and collapse of Lehman Brothers was because of Credit Default Swaps which is again a derivative? It was done in the past, they are doing it and it will be done again in the future until unless there is no one who can stop them, it’s a war of attaining power and politics of not letting common man become rich.
By Rahul Tyagi
Contact Rahul at email@example.com
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.