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What’s 20 Trillion Dollars Between Friends? McGraw-Hill and Petroleum Price Fixing (Now THIS Is a Scandal!)

Dave Emory’s entire life­time of work is avail­able on a flash dri­ve that can be obtained here. (The flash dri­ve includes the anti-fas­cist books avail­able on this site.)

COMMENT: In recent days, the Naz­i­fied GOP has been foam­ing at the mouth over alleged “scan­dals” involv­ing the Oba­ma admin­is­tra­tion. Hav­ing ignored the moun­tains of cor­rup­tion that accu­mu­lat­ed dur­ing the Bush admin­is­tra­tion, the media have set an hys­ter­i­cal tone over these non-scan­dals.

As not­ed in dis­cus­sion of the Beng­hazi farce, the sub­poe­nas issued for AP reporters’ phone records could pre­dictably have been gauged to raise the medi­a’s hack­les. Occur­ring in the swamp of Mid­dle-East counter-ter­ror­ism, the leak­ing of infor­ma­tion about a Yemeni oper­a­tion may well have been intend­ed to pro­duce just such an occur­rence. 

What was leaked, and who leaked it? That will be inter­est­ing to know.

Mean­while, the whored-out Amer­i­can press is not high­light­ing a very sig­nif­i­cant, though com­pli­cat­ed, inves­ti­ga­tion involv­ing appar­ent mas­sive  col­lu­sion in the rig­ging of petro­le­um pric­ing.

The sum poten­tial­ly involved here is esti­mat­ed by The Econ­o­mist at $20 tril­lion.

Cen­tral­ly involved is a McGraw-Hill sub­sidiary com­pa­ny called Platts.

As cov­ered in a pre­vi­ous post, the McGraw fam­i­ly are long stand­ing polit­i­cal allies of the Bush­es, who have long been involved with what is known in Texas as “the Ahl Bid­ness.”

We also note that the appar­ent price-rig­ging dates to 2002, the imme­di­ate after­math of 9/11 and the peri­od in the run-up to the inva­sion of Iraq. In FTR #560 and FTR #561, we not­ed that war–or the threat of war–in the Mid­dle East always ele­vates the price of oil. 

The cost of drilling for oil and refin­ing the prod­uct does NOT go up. Prof­its, there­fore, “soar with war,” so to speak, yield­ing enor­mous prof­its for petro­le­um-relat­ed inter­ests. As one investor put it, “It’s always good for us.”

It remains to be seen, of course, where this inves­ti­ga­tion goes. Don’t be sur­prised if the truth gets swept under the rug.

We would bet a very large sum of mon­ey that the front-run­ning shills of the Amer­i­can media will man­age to ignore this sto­ry.

“Oil Mar­kets Fall Under the Sus­pi­cion of Price-Fix­ing on a Glob­al Scale”; The Econ­o­mist; 5/18/2013.

EXCERPT: It is a les­son of the past five years that bench­marks in unreg­u­lated mar­kets can fall vic­tim to the incen­tives they cre­ate. Sub­prime mort­gages bun­dled into secu­ri­ties often won high scores from rat­ings agen­cies that stood to prof­it in a busy mar­ket. The Lon­don Inter­bank Offered Rate, LIBOR, was some­times under­es­ti­mated by banks which were cast in a health­ier light by low­er inter­est rates. Has some­thing sim­i­lar been going on in ener­gy?

That is the sus­pi­cion after a series of raids on May 14th by the Euro­pean Commission’s com­pe­ti­tion author­i­ties. The com­mis­sion declared that it feared oil com­pa­nies had “col­luded” to dis­tort bench­mark prices for crude, oil prod­ucts and bio­fu­els. Roy­al Dutch Shell, BP, Norway’s Sta­toil and Italy’s ENI (which was not raid­ed) all said that they were co-oper­at­ing with the com­mis­sion. The com­pe­ti­tion author­i­ties also called on the Lon­don offices of Platts, a sub­sidiary of McGraw Hill, an Amer­i­can pub­lisher and busi­ness-infor­ma­tion firm, which sets ref­er­ence prices for these com­modi­ties.

The vol­umes of oil and prod­ucts linked to these bench­mark prices are vast. Futures and deriv­a­tives mar­kets are also built on the price of the under­ly­ing phys­i­cal com­mod­ity. At least 200 bil­lion bar­rels a year, worth in the order of $20 tril­lion, are priced off the Brent bench­mark, the world’s biggest, accord­ing to Liz Boss­ley, chief exec­u­tive of Con­silience, an ener­gy-mar­kets con­sul­tancy. The com­mis­sion has said that even small price dis­tor­tions could have a “huge impact” on ener­gy prices. Sta­toil has said that the commission’s inter­est goes all the way back to 2002. If it is right, then the sums involved could be huge, too.

The author­i­ties are tight-lipped about their focus, but they seem to be exam­in­ing the integri­ty of bench­mark prices. Each day Platts’s reporters estab­lish a ref­er­ence price by fol­low­ing the val­ue of pub­lic bids and offers dur­ing a half-hour “win­dow” before a set time—4:30pm in Lon­don, for exam­ple. This “Mar­ket-on-Close” (MOC) method is based on the idea that using pub­lished, ver­i­fi­able deals to set the price is more reli­able than hav­ing reporters ring around their pals, who might be tempt­ed to talk their own books.

Platts keen­ly defends the MOC method. It points out that it ignores bids, offers and deals that are anom­alous or sus­pi­cious. “We are not aware of any evi­dence that our price assess­ments are not reflec­tive of mar­ket val­ue,” it says, before declar­ing that it stands behind its method. 

The author­i­ties are tight-lipped about their focus, but they seem to be exam­in­ing the integri­ty of bench­mark prices. Each day Platts’s reporters estab­lish a ref­er­ence price by fol­low­ing the val­ue of pub­lic bids and offers dur­ing a half-hour “win­dow” before a set time—4:30pm in Lon­don, for exam­ple. This “Mar­ket-on-Close” (MOC) method is based on the idea that using pub­lished, ver­i­fi­able deals to set the price is more reli­able than hav­ing reporters ring around their pals, who might be tempt­ed to talk their own books. . . .

Yet such price-set­ting mech­a­nisms have come in for crit­i­cism. The Inter­na­tion­al Organ­i­sa­tion of Secu­ri­ties Com­mis­sions (IOSCO), a group­ing of finan­cial reg­u­la­tors, said last year that the poten­tial for false report­ing “is not mere con­jec­ture.” Total, a French oil giant that was not raid­ed this week, told IOSCO that bench­mark prices were out of line with the under­ly­ing mar­ket “sev­er­al times a year”. . . .

Discussion

2 comments for “What’s 20 Trillion Dollars Between Friends? McGraw-Hill and Petroleum Price Fixing (Now THIS Is a Scandal!)”

  1. Here’s an arti­cle on one of the ways the non-US oil giants are prof­it­ing from the low oil prices: In addi­tion to being major oil pro­duc­ers, it turns out that BP, Shell, and Total are also the world’s biggest oil traders (hence the price-fix­ing probe). And when you’re in the trad­ing busi­ness, it’s less impor­tant what direc­tion prices move. Any move can poten­tial­ly make you mon­ey:

    Bloomberg News
    How Big Oil Is Prof­it­ing From the Slump
    by Javier Blas
    7:01 PM CDT
    March 11, 2015

    (Bloomberg) — Europe’s largest oil com­pa­nies are gain­ing sup­port from an unlike­ly source as they con­front the industry’s worst slump since the finan­cial cri­sis: low­er oil prices.

    Although bet­ter known for their oil fields, refiner­ies, and petrol sta­tions, BP Plc, Roy­al Dutch Shell Plc and Total SA are also the world’s biggest oil traders, han­dling enough crude and refined prod­ucts every day to meet the con­sump­tion of Japan, India, Ger­many, France, Italy, Spain and the Nether­lands.

    The trio’s sway in com­modi­ties trad­ing, large­ly unknown out­side the indus­try, is set to pay off in 2015 as the bear mar­ket allows traders to gen­er­ate high­er returns by stor­ing cheap oil today to sell at high­er prices lat­er and using low­er prices to make more bets with the same cap­i­tal.

    “Volatil­i­ty has increased dra­mat­i­cal­ly over the last three or four months,” said Mike Con­way, the head of Shell’s trad­ing and sup­ply busi­ness. “Parts of your busi­ness that are volatil­i­ty dri­ven are prob­a­bly doing pret­ty well.”

    While com­pa­nies are shy about reveal­ing the finan­cial results from their trad­ing busi­ness, a look at the last major bear mar­ket pro­vides clues to the oppor­tu­ni­ty they have today. In the first quar­ter of 2009, BP said it made $500 mil­lion above its nor­mal lev­el of prof­its from trad­ing. That means that trad­ing account­ed for, at the very least, 20 per­cent of BP’s adjust­ed income of $2.38 bil­lion that quar­ter.

    From deal­ing floors that resem­ble the oper­a­tions of Wall Street banks in cities includ­ing Gene­va, Lon­don, Hous­ton, Chica­go and Sin­ga­pore, oil trad­ing could pro­vide BP, Shell and Total with an edge over U.S. rivals Exxon Mobil Corp. and Chevron Corp., which sell their own pro­duc­tion, but large­ly eschew pure trad­ing as a means of gen­er­at­ing prof­its.

    Euro­pean Trio

    Few oth­er pub­licly-list­ed oil com­pa­nies trade at the scale of the Euro­pean trio, although Sta­toil ASA, Eni SpA and OAO Lukoil all have trad­ing desks.

    The amount of crude oil and fuel trad­ed each day by the three Euro­pean majors togeth­er dwarf the com­bined size of inde­pen­dent traders such as Vitol, Glen­core, Trafigu­ra, Mer­cu­ria, Gun­vor, based on com­pa­ny state­ments and peo­ple famil­iar with the mar­ket.

    “The trad­ing arms of the oil pro­duc­ers have the oppor­tu­ni­ty to mon­e­tize sig­nif­i­cant oppor­tu­ni­ties this year,” said Roland Recht­stein­er, a part­ner at con­sul­tants Oliv­er Wyman, who spe­cial­izes in advis­ing com­mod­i­ty-trad­ing busi­ness­es.

    The last time that a Euro­pean oil major dis­closed the prof­itabil­i­ty of its trad­ing oper­a­tion was a decade ago, when BP said it made $2.97 bil­lion in 2005, or about 10 per­cent of the company’s total earn­ings that year.

    With­out giv­ing away con­crete finan­cial results, the com­pa­nies have indi­cat­ed income from trad­ing already rose in the fourth quar­ter of 2014 as oil prices fell.

    Stronger Results

    Bri­an Gilvary, BP Chief Finan­cial Offi­cer, said on Feb. 3 the group has ben­e­fit­ed from an “improved result from sup­ply and trad­ing.” Gilvary ran BP’s trad­ing arm from 2005 to 2009.

    “We’re in a very strong com­mod­i­ty trad­ing posi­tion,” Shell CFO Simon Hen­ry said in a call with ana­lysts on a Jan. 29. “Our abil­i­ty to take advan­tage of volatil­i­ty is some pro­tec­tion to mit­i­gate the low price envi­ron­ment.”

    BP and Shell declined to com­ment fur­ther. Total didn’t respond to requests for com­ment.

    Although extra prof­its from trad­ing won’t off­set the much larg­er loss of rev­enue from low­er oil prices, it could help the three com­pa­nies to weath­er the cri­sis and, per­haps more impor­tant­ly, beat ana­lysts’ esti­mates.

    Ana­lysts esti­mate BP’s adjust­ed net income will drop to $6.2 bil­lion in 2015, high­light­ing the impact a boost from trad­ing could have in the final results.

    Beyond the large oil pro­duc­ers, trad­ing exec­u­tives are opti­mistic they could reap strong prof­its in 2015.

    Ivan Glasen­berg, chief exec­u­tive offi­cer of Glen­core, said on March 2 that if the mar­ket con­tin­ues as in the first two months, oil trad­ing “could have a blow-out year” in 2015.

    Bear Mar­kets

    In the past, oil trad­ing hous­es have enjoyed stronger returns dur­ing bear mar­kets. Vitol, the world’s largest inde­pen­dent oil trad­er, had record income of $2.28 bil­lion in 2009, up from $1.36 bil­lion in 2008, accord­ing to the company’s accounts.

    Fitch Rat­ings antic­i­pates that oil traders “are like­ly to report healthy earn­ings in 2015 as they ben­e­fit from volatile oil prices.”

    Sev­er­al fac­tors explain the expect­ed rise in income. First, after years of steady prices, volatil­i­ty has surged, allow­ing traders to make more bets about the direc­tion of the mar­ket. Sec­ond, over­sup­ply has pushed oil prices into a struc­ture called con­tan­go — a rel­a­tive­ly rare sit­u­a­tion where for­ward prices are high­er than cur­rent prices, allow­ing traders to buy oil cheap, store the com­mod­i­ty and sell lat­er. Third, low­er prices mean it takes less cap­i­tal to make trades.

    ...

    Mar­ket Intel­li­gence

    BP said on its web­site that its glob­al trad­ing activ­i­ty gen­er­ates a huge amount of mar­ket intel­li­gence that oth­er com­pa­nies do not have.

    “This gives us a clear advan­tage in con­vert­ing up-to-the-minute data into effec­tive mar­ket calls,” it says.

    The large trad­ing busi­ness­es Europe’s oil majors have aren’t mir­rored at rivals in the U.S.

    That’s large­ly the result of merg­ers in the late 1990s and 2000s where the acquir­ing com­pa­nies had a non-trad­ing cul­ture that pre­vailed. As such Mobil trad­ing slow­ly dis­ap­peared when it com­bined with Exxon, while Tex­a­co fol­lowed suit after merg­ing with Chevron.

    BP employs in its Inte­grat­ed Sup­ply and Trad­ing busi­ness, as the trad­ing arm is known, about 3,000 peo­ple in trad­ing floors in Lon­don, Chica­go, Sin­ga­pore and sev­er­al oth­er cities. Total Oil Trad­ing SA, or Tot­sa, employs 500 in hubs in Gene­va, Hous­ton and Sin­ga­pore. Shell Inter­na­tion­al Trad­ing and Ship­ping Com­pa­ny, known in the indus­try as Stas­co, does not dis­close the num­ber of employ­ees.

    The trio trades at least 15 mil­lion bar­rels a day of crude and oil refined prod­ucts, accord­ing to esti­mates from indus­try exec­u­tives com­piled by Bloomberg News.

    As we can see, while the oil giants don’t seem to actu­al­ly want to tell the world how much they’re mak­ing off of their trad­ing that does­n’t seem to be due to low prof­its. And as we can also see, a major com­po­nent dri­ving the cur­rent oil trad­ing fren­zy is:

    The trio’s sway in com­modi­ties trad­ing, large­ly unknown out­side the indus­try, is set to pay off in 2015 as the bear mar­ket allows traders to gen­er­ate high­er returns by stor­ing cheap oil today to sell at high­er prices lat­er and using low­er prices to make more bets with the same cap­i­tal.

    It all rais­es the ques­tion that could become more and more top­i­cal as the low prices con­tin­ue: What hap­pens to the oil mar­ket if there’s no more space left to store all that oil? It a ques­tion that we might get answered soon­er than you expect:

    Bloomberg News
    The U.S. Has Too Much Oil and Nowhere to Put It
    Over­flow­ing stor­age tanks could lead to anoth­er drop in prices
    by Matthew Philips
    4:00 AM CDT
    March 12, 2015

    Sev­en months ago the giant tanks in Cush­ing, Okla., the largest crude oil stor­age hub in North Amer­i­ca, were three-quar­ters emp­ty. After spend­ing the last few years brim­ming with light, sweet crude unlocked by the shale drilling rev­o­lu­tion, the tanks held just less than 18 mil­lion bar­rels by late July, down from a high of 52 mil­lion in ear­ly 2013. New pipelines to refiner­ies along the Gulf Coast had drained Cush­ing of more than 30 mil­lion bar­rels in less than a year.

    As quick­ly as it emp­tied out, Cush­ing has filled back up again. Since Octo­ber, the amount of oil stored there has almost tripled, to more than 51 mil­lion bar­rels. As oil prices have crashed, from more than $100 a bar­rel last sum­mer to below $50 now, big trad­ing com­pa­nies are stor­ing their crude in hopes of sell­ing it for high­er prices down the road. With U.S. pro­duc­tion con­tin­u­ing to expand, that’s led to the fastest increase in U.S. oil inven­to­ries on record. For most of this year, the U.S. has added almost 1 mil­lion bar­rels a day to its stash of crude sup­plies. As of March 11, nation­wide stocks were at 449 mil­lion bar­rels, by far the most ever.

    Not only are the tanks at Cush­ing fill­ing up, so are those across much of the U.S. Facil­i­ties in the Mid­west are about 70 per­cent full, while the East Coast is at about 85 per­cent capac­i­ty. This has some ana­lysts begin­ning to won­der if the U.S. has enough room to store all its oil. Ed Morse, the glob­al head of com­modi­ties research at Cit­i­group, raised that con­cern on Feb. 23 at an oil sym­po­sium host­ed by the Coun­cil on For­eign Rela­tions in New York. “The fact of the mat­ter is, we’re run­ning out of stor­age capac­i­ty in the U.S.,” he said.

    If oil sup­plies do over­whelm the abil­i­ty to store them, the U.S. will like­ly cut back on imports and final­ly slow down the pace of its own pro­duc­tion, since there won’t be any­where to put excess sup­ply. Prices could also fall, per­haps by a lot. Morse and his team of ana­lysts at Cit­i­group have pre­dict­ed that some­time this spring, as tanks reach their lim­its, oil prices will again nose­dive, poten­tial­ly all the way to $20 a bar­rel. With no place to store crude, pro­duc­ers and trad­ing com­pa­nies would like­ly have to sell their oil to refiner­ies at dis­count­ed prices, which could final­ly per­suade pro­duc­ers to stop pump­ing.

    Oil investors appear to be com­ing around to the notion that a lack of stor­age capac­i­ty could lead to anoth­er price crash. In the futures mar­ket, hedge funds have spent the past few weeks cut­ting their bets that oil prices will rise. Instead, they’ve built up a record short posi­tion, increas­ing their wagers that prices will fall. Dur­ing a March 11 inter­view on CNBC, Gold­man Sachs Pres­i­dent Gary Cohn said he’s con­cerned the U.S. is run­ning out of stor­age, par­tic­u­lar­ly as refiner­ies enter their sea­son­al main­te­nance peri­od, to pre­pare for the sum­mer dri­ving sea­son. Around this time they usu­al­ly cut the amount of crude they buy. Cohn said prices could go as low as $30 a bar­rel.

    The math on this can be a bit tricky. The U.S. Depart­ment of Ener­gy mea­sures oil stor­age capac­i­ty twice a year, once in the spring and again in the fall. As of Sep­tem­ber 2014, the U.S. had 521 mil­lion bar­rels of work­ing capac­i­ty, up from 500 mil­lion in 2013. That includes the space inside tank farms and on-site at refiner­ies. It doesn’t, how­ev­er, include the amount of oil that can be stored in pipelines or stor­age tanks near oil wells; nor does it include the amount of capac­i­ty in tankers off the coast, in tran­sit from Alas­ka, or on trains. Of the 449 mil­lion bar­rels of total crude stocks, about 327 mil­lion are stored in tank farms or on-site at refiner­ies.

    Accord­ing to data from the Ener­gy Infor­ma­tion Admin­is­tra­tion, the U.S. is using about 63 per­cent of its stor­age capac­i­ty, up from 48 per­cent a year ago. “We have more space than some peo­ple tend to believe,” says Andy Lipow, an ener­gy con­sul­tant in Hous­ton. The most recent esti­mate of stor­age capac­i­ty also doesn’t include tanks built since Sep­tem­ber in North Dako­ta, Col­orado, Wyoming, and Texas, he says.

    ...

    Even with prices less than half what they were last sum­mer and stor­age capac­i­ty grow­ing scarcer, U.S. oil out­put has con­tin­ued to rise. Through Feb­ru­ary, U.S. dai­ly crude pro­duc­tion reached 9.3 mil­lion bar­rels, about 1 mil­lion bar­rels more than a year ago. The mas­sive stor­age buildup has pro­vid­ed oil com­pa­nies with a phan­tom demand for their crude. Many hedged pro­duc­tion before prices got too low, tak­ing out futures con­tracts that guar­an­tee a cer­tain price. That’s allowed them to sell oil for a price high­er than the going rate of $49 a bar­rel, keep­ing many prof­itable despite low­er prices.

    Run­ning out of room inside the nation’s stor­age tanks might be the only way to keep com­pa­nies from pump­ing more oil. “These pro­duc­ers have kept chug­ging away when they should have been shut­ting down,” says Dominick Chirichel­la, co-pres­i­dent of the Ener­gy Man­age­ment Insti­tute, a New York-based advi­so­ry group. “At some point, the fact that sup­ply is out­strip­ping demand has to have its moment of truth.”

    So which trend will win? Will stor­age capac­i­ty run so low that trad­ing com­pa­nies are forced to sell, dri­ving prices even low­er?

    ...
    If oil sup­plies do over­whelm the abil­i­ty to store them, the U.S. will like­ly cut back on imports and final­ly slow down the pace of its own pro­duc­tion, since there won’t be any­where to put excess sup­ply. Prices could also fall, per­haps by a lot. Morse and his team of ana­lysts at Cit­i­group have pre­dict­ed that some­time this spring, as tanks reach their lim­its, oil prices will again nose­dive, poten­tial­ly all the way to $20 a bar­rel. With no place to store crude, pro­duc­ers and trad­ing com­pa­nies would like­ly have to sell their oil to refiner­ies at dis­count­ed prices, which could final­ly per­suade pro­duc­ers to stop pump­ing.
    ...

    Or is there far more capac­i­ty than peo­ple real­ize and this is all much ado about noth­ing?

    ...
    Accord­ing to data from the Ener­gy Infor­ma­tion Admin­is­tra­tion, the U.S. is using about 63 per­cent of its stor­age capac­i­ty, up from 48 per­cent a year ago. “We have more space than some peo­ple tend to believe,” says Andy Lipow, an ener­gy con­sul­tant in Hous­ton. The most recent esti­mate of stor­age capac­i­ty also doesn’t include tanks built since Sep­tem­ber in North Dako­ta, Col­orado, Wyoming, and Texas, he says.
    ...

    As with every­thing, we’ll just have to wait and see. But don’t expect to see too many sto­ries about small inde­pen­dent traders mak­ing big prof­its from this kind of play. The ‘con­tan­go’ tan­go isn’t meant for the rab­ble:

    Bloomberg News
    Com­mod­i­ty Traders Exploit Crude Crash to Make Oil Stor­age King
    by Andy Hoff­man
    and Rupert Rowl­ing
    5:01 PM CST
    Jan­u­ary 13, 2015

    (Bloomberg) — The key to sur­viv­ing and thriv­ing amid the car­nage in glob­al oil mar­kets is hav­ing a place to store the stuff.

    Oil prices have dropped 60 per­cent since June as the U.S. pumped more shale crude and OPEC resist­ed calls to cut pro­duc­tion, stok­ing a glob­al sup­ply glut. While the 28-com­pa­ny STOXX 600 Oil & Gas Index has fall­en 4.9 per­cent this month, shares of Rot­ter­dam-based Roy­al Vopak NV, the world’s largest inde­pen­dent stor­age tank oper­a­tor, have surged 15 per­cent.

    “We don’t know specif­i­cal­ly about occu­pan­cy rates but we hear from com­pa­nies that inquiries for tank stor­age are grow­ing,” Ronald Back­ers, advis­er for busi­ness intel­li­gence at the Port of Rot­ter­dam, said by phone Jan. 12. Europe’s largest port has crude oil tank stor­age of 85.6 mil­lion bar­rels.

    Refin­ers, tank­age firms and traders that invest­ed in oil stor­age capac­i­ty are ben­e­fit­ing as the slump in crude to below $45 a bar­rel deep­ened what’s called con­tan­go, a rel­a­tive­ly rare sit­u­a­tion where prices for oil deliv­ery lat­er this year are high­er than cur­rent prices. Vitol Group, Mer­cu­ria Ener­gy Group Ltd. and Gun­vor Group Ltd. are among the com­mod­i­ty hous­es poised to prof­it by stor­ing oil and petro­le­um prod­ucts to sell in the future.

    “There is sig­nif­i­cant stor­age demand from traders want­i­ng to cash in on that spe­cif­ic oppor­tu­ni­ty,” Mar­ti­jn den Dri­jver, an ana­lyst at SNS Secu­ri­ties in Ams­ter­dam, said in an inter­view.

    ...

    Buy Rec­om­men­da­tion

    Jef­feries Inter­na­tion­al Ltd. ini­ti­at­ed a cov­er­age of Vopak with a buy rec­om­men­da­tion, David Ker­stens, a Lon­don-based equi­ty ana­lyst, said in an e‑mailed note today. The con­tan­go is expect­ed to sup­port a recov­ery in the Vopak’s occu­pan­cy rates and lead to a more favor­able pric­ing envi­ron­ment, he said.

    Hans de Willi­gen, a spokesman for Vopak, said the com­pa­ny won’t com­ment on the impact of con­tan­go on its oper­a­tions until after it reports full-year finan­cial results on Feb. 27.

    “Vopak exe­cutes its strat­e­gy not on the basis of short-term prod­uct price devel­op­ments but exe­cutes its strat­e­gy based on long-term glob­al trends in the ener­gy and chem­i­cals mar­kets,” de Willi­gen said.

    As much as 90 per­cent of glob­al oil stor­age capac­i­ty is “cap­tive,” or con­trolled by major pro­duc­ers such as Roy­al Dutch Shell Plc, BP Plc or Chevron Corp., accord­ing to den Dri­jver. That means only a small part of land-based oil stor­age is avail­able for inde­pen­dent traders to lease to exploit the mar­ket con­tan­go, which has pre­vailed since July.

    Some of the world’s largest oil traders have moved to secure float­ing stor­age in tankers to take advan­tage of the mar­ket con­tan­go. Vitol, Koch Indus­tries Inc., Shell and Trafigu­ra Beheer BV, have booked tankers that could be used to store crude at sea for one-year char­ters, accord­ing to reports from ship­bro­kers includ­ing Opti­ma.

    ...

    “As much as 90 per­cent of glob­al oil stor­age capac­i­ty is “cap­tive,” or con­trolled by major pro­duc­ers such as Roy­al Dutch Shell Plc, BP Plc or Chevron Corp., accord­ing to den Dri­jver. That means only a small part of land-based oil stor­age is avail­able for inde­pen­dent traders to lease to exploit the mar­ket con­tan­go, which has pre­vailed since July.
    Sounds like it’s going to be a good year for the big boys. Maybe the rest of rest of us should con­sid­er get­ting in on the action. It could be real­ly prof­itable.

    Posted by Pterrafractyl | March 12, 2015, 12:00 pm
  2. Here’s the lat­est reminder that the ‘invis­i­ble hand’ of the poor­ly reg­u­lat­ed mar­ket is fre­quent­ly attached to the arm of an invis­i­ble car­tel:

    Five big banks face crim­i­nal charges and $5 bil­lion bill over FX rig­ging

    Tue May 19, 2015 7:04pm EDT

    LONDON/NEW YORK (Reuters) — Five of the world’s biggest banks are expect­ed to be hit with a com­bined bill of more than $5 bil­lion and crim­i­nal charges on Wednes­day in a set­tle­ment with U.S. and British author­i­ties over rig­ging of cur­ren­cy mar­kets.

    It will mark anoth­er dark day for an indus­try try­ing to put past sins behind it and brings the total in penal­ties some big banks will pay for their traders alleged­ly manip­u­lat­ing the $5‑tril­lion-a-day for­eign exchange mar­ket to about $10 bil­lion.

    U.S. banks JPMor­gan and Cit­i­group and Britain’s Bar­clays and Roy­al Bank of Scot­land are expect­ed to plead guilty to crim­i­nal charges with the U.S. Depart­ment of Jus­tice relat­ed to forex manip­u­la­tion, peo­ple famil­iar with the mat­ter said.

    It would be unprece­dent­ed for the par­ent com­pa­nies or main bank­ing arms of so many major banks to plead guilty to crim­i­nal charges in a coor­di­nat­ed action. JPMor­gan and Cit­i­group would be the first major U.S. banks to plead guilty to crim­i­nal charges in decades.

    Swiss bank UBS is expect­ed to avoid a crim­i­nal charge after get­ting immu­ni­ty for alert­ing author­i­ties to a pos­si­ble prob­lem. But it faces a crim­i­nal charge over the rig­ging of bench­mark (Libor) inter­est rates, two peo­ple famil­iar with the mat­ter said.

    That stems from an agree­ment with the DoJ in its Decem­ber 2012 Libor set­tle­ment not to com­mit more offences. It will also pay a $200 mil­lion fine, the two sources said.

    Bar­clays is also expect­ed to reach set­tle­ments with oth­er British and U.S. reg­u­la­tors, which means its penal­ties could be sig­nif­i­cant­ly high­er than the oth­er banks and top $2 bil­lion.

    Bar­clays has set aside $3.2 bil­lion to cov­er any forex fines, and oth­er banks also have pro­vi­sions for set­tle­ments.

    Indi­vid­u­als at Bar­clays could also be held account­able if there is evi­dence of bad con­duct, New York’s bank­ing reg­u­la­tor Ben­jamin Lawsky told Reuters on Tues­day, echo­ing a warn­ing he made last week.

    Britain’s Finan­cial Con­duct Author­i­ty and some U.S. author­i­ties fined a group of six banks $4.3 bil­lion in Novem­ber for forex manip­u­la­tion, but Bar­clays did not join that deal due to com­pli­ca­tions with its reg­u­la­tor in New York.

    The impact of guilty pleas by the par­ent com­pa­nies or main bank­ing arms of major banks is uncer­tain, and could jeop­ar­dize their U.S. oper­a­tions.

    The banks are seek­ing assur­ances from U.S. reg­u­la­tors they will not be barred from cer­tain busi­ness­es if they plead guilty, sev­er­al sources famil­iar with sit­u­a­tion said.

    ...

    Some author­i­ties will con­tin­ue to look at whether com­put­er pro­grams used in trad­ing plat­forms could have rigged forex prices, which is like­ly to be exclud­ed from Wednes­day’s deal.

    Well, that wraps that up! Just the cost of doing busi­ness.

    Although you have to won­der what busi­ness­es these banks are so wor­ried about get­ting barred from if they plead guilty. Hint: it ain’t forex trad­ing:

    ...
    The banks are seek­ing assur­ances from U.S. reg­u­la­tors they will not be barred from cer­tain busi­ness­es if they plead guilty, sev­er­al sources famil­iar with sit­u­a­tion said.
    ...

    While Forex trad­ing is an obvi­ous guess, that does­n’t appear to be the cash cow the banks are wor­ried about no longer milk­ing. They have a lot of cash cows:

    Reuters
    SEC a stum­bling block in banks’ forex guilty pleas: sources

    NEW YORK/WASHINGTON | By Karen Freifeld, Sarah N. Lynch and Soy­oung Kim

    Thu May 14, 2015 9:33pm EDT

    Banks want assur­ances from U.S. reg­u­la­tors that they will not be barred from cer­tain busi­ness­es before agree­ing to plead guilty to crim­i­nal charges over the manip­u­la­tion of for­eign exchange rates, caus­ing a delay in multi­bil­lion-dol­lar set­tle­ments, peo­ple famil­iar with the mat­ter said.

    In an unprece­dent­ed move, the par­ent com­pa­nies or main bank­ing units of JPMor­gan Chase & Co (JPM.N), Cit­i­group Inc (C.N), Roy­al Bank of Scot­land Group Plc (RBS.L), Bar­clays Plc (BARC.L) and UBS Group AG (UBSG.VX) are like­ly to plead guilty to rig­ging for­eign exchange rates to ben­e­fit their trans­ac­tions.

    The banks are also scram­bling to line up exemp­tions or waivers from the Secu­ri­ties and Exchanges Com­mis­sion and oth­er fed­er­al reg­u­la­tors because crim­i­nal pleas trig­ger con­se­quences such as remov­ing the abil­i­ty to man­age retire­ment plans or raise cap­i­tal eas­i­ly.

    In the past, waivers have gen­er­al­ly been grant­ed with­out a hitch. How­ev­er, the prac­tice has become con­tro­ver­sial in the past year, par­tic­u­lar­ly at the SEC, where Demo­c­ra­t­ic Com­mis­sion­er Kara Stein has crit­i­cized the agency for rub­ber stamp­ing requests and being too soft on repeat offend­ers.

    Nego­ti­at­ing some of the waivers among the SEC’s five com­mis­sion­ers could prove chal­leng­ing because many of these banks have bro­ken crim­i­nal or civ­il laws in the past that trig­gered the need for waivers.

    Many of the banks want an SEC waiv­er to con­tin­ue oper­at­ing as “well-known sea­soned issuers” so they can sell stocks and debt effi­cient­ly, peo­ple famil­iar with the mat­ter said. Such a des­ig­na­tion allows pub­lic com­pa­nies to bypass SEC approval and raise cap­i­tal “off the shelf” — a process that is speed­i­er and more con­ve­nient.

    Sev­er­al of the peo­ple said anoth­er waiv­er being sought by some banks is the abil­i­ty to retain a safe har­bor that shields them from class action law­suits when they make for­ward-look­ing state­ments.

    The banks involved are also seek­ing waivers that will allow them to con­tin­ue oper­at­ing in the mutu­al fund busi­ness, sources said.

    At least some of the waivers at issue in the forex probe will need to be put to a vote by the SEC’s five com­mis­sion­ers. No date has been set yet, a few of the peo­ple famil­iar with the mat­ter said.

    The plea deals could be announced as soon as next week, two of the peo­ple said, adding that not all the penal­ties had been final­ized yet.

    Peter Carr, a spokesman for the U.S. Jus­tice Depart­ment, declined com­ment on the tim­ing or rea­son for a pos­si­ble delay of any agree­ments. Citi, JPMor­gan, RBS and UBS did not respond to requests for com­ment. A Bar­clays spokesman declined to com­ment.

    The Jus­tice Depart­ment has been nego­ti­at­ing with the banks for months over how to resolve alle­ga­tions that traders col­lud­ed to rig rates in the large­ly unreg­u­lat­ed $5.3 tril­lion-a-day cur­ren­cy mar­ket.

    If the par­ent com­pa­nies of U.S.-based JPMor­gan and Cit­i­group plead guilty as planned, it would be the first time in decades that a major Amer­i­can finan­cial insti­tu­tion has done so.

    Last year, when Swiss bank Cred­it Suisse AG (CSGN.VX) plead­ed guilty in the Unit­ed States to help­ing wealthy Amer­i­cans evade tax­es, it became the largest insti­tu­tion in over 20 years to admit crim­i­nal wrong­do­ing. It was soon fol­lowed by French bank­ing group BNP Paribas SA (BNPP.PA).

    Sep­a­rate­ly, the Wall Street Jour­nal report­ed on Thurs­day night that the U.S. Jus­tice Depart­ment void­ed a 2012 set­tle­ment with UBS relat­ed to inter­est-rate rig­ging.

    Cit­ing cur­rent and for­mer gov­ern­ment offi­cials, it said the nego­ti­a­tions were expect­ed to result in deals next week in which UBS would pay a fine of about $200 mil­lion and plead guilty to alle­ga­tions that its traders manip­u­lat­ed the Lon­don inter­bank offered rate, or Libor, before 2012.

    Yes, you read that right, the big banks that are about to admit to run­ning a mas­sive glob­al car­tel (they actu­al­ly called the chat room that was used to do the rig­ging “The Car­tel”) that was manip­u­lat­ing the cur­ren­cies of entire nations around the world for years for the pri­vate ben­e­fit of “The Car­tel” are prob­a­bly going to plead guilty, but they real­ly want assur­ances that they’ll con­tin­ue to be allowed to man­age retire­ment plans . Well, that should be inter­est­ing.

    Also:

    If the par­ent com­pa­nies of U.S.-based JPMor­gan and Cit­i­group plead guilty as planned, it would be the first time in decades that a major Amer­i­can finan­cial insti­tu­tion has done so.

    And in oth­er news...

    Posted by Pterrafractyl | May 19, 2015, 7:11 pm

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