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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.
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”. . . .
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:
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:
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:
So which trend will win? Will storage capacity run so low that trading companies are forced to sell, driving prices even lower?
Or is there far more capacity than people realize and this is all much ado about nothing?
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:
“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.
Here’s the latest reminder that the ‘invisible hand’ of the poorly regulated market is frequently attached to the arm of an invisible cartel:
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:
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:
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:
And in other news...