Crude Oil Prices Could Be Easily Manipulated

Crude Oil Prices Could Be Easily Manipulated; Helped By Ridiculously Low 7% Margin Requirement for Oil Futures. We Don't Know That Oil Prices Are Being Manipulated, But They Could.

The ridiculously low 7% margin requirement for crude oil futures contracts means that oil producers, big or small, could easily be manipulating the price of oil for their own benefit. That's not to say that pension funds and other hedge players aren't also going steadily long crude oil and other commodity futures. But it is in the obvious self interest of oil producers to have an ever rising price of crude.

For example, suppose the "players" who run Russia (or Iran, or Venezuela or any major or minor producer) decided a year ago to invest $200 million per month as margin to go long oil futures. Margin of $200 million could control as many as 25,000 contracts at $8,000 per contract, which would be equal to 1.3% of notional open interest.Wouldn't adding 1.3% each month to the 1.9 million contracts of notional open interest be enough to produce the crazy oil market that exists now?

Publicly available sources indicate that Russia produces 9.4 million barrels of oil per day, Iran 4.0 million bpd and Venezuela 3.0 million bpd. The increase in oil prices from $60 per barrel to $130 per barrel in the past year for Russia alone has translated into an additional $20 billion per month (9.4 million barrels per day * 30 days per month * $70 increase per barrel = $20 billion). Not only would higher prices mean more cash now but also higher values for what's left. Let's not forget that someone who bought $2.8 billion worth of oil last year at $60 per barrel using $200 million in margin is sitting on a profit of over $3 billion per $200 million investment.

We have no evidence of any kind that oil producers are pumping up oil prices, but they could. If we were producing millions of barrels per day of oil, we would consider going long oil futures, putting up $1 to control $14 dollars of crude, to ensure that prices keep rising.

Our Modest Solution to Oil Price Spike: U.S. Should Divert Money Saved from Ending Strategic Petroleum Reserve Purchases to Go Short Oil Futures.

One obvious way to burst the oil bubble would be to boost the margin requirement for oil futures. Since exchanges and brokers earn big bucks from trading lots of contracts, we therefore doubt margin requirements will be boosted any time soon.

But there is another way to bring the oil mania under control. If it is logical for oil producers to go long oil futures to enhance the future value of their remaining oil, why is it not logical for oil consumers to go short oil futures? Japan, are you listening?

The U.S. recently suspended its daily purchases of 70,000 barrels of oil for the Strategic Petroleum Reserve. Why not use the savings of roughly $275 million per month to short oil futures (70,000 barrels per day * 30 days per month * $131 per barrel = $275 million)? That $275 million would be enough to short 34,400 contracts per month. The U.S. has more than 700 million barrels of oil in the Strategic Petroleum Reserve, which is about 1/3 the notional open interest of oil futures. In essence the U.S. would be offering to sell at a high price the crude it bought at much lower prices. For the future, would the U.S. be better off with lower oil prices or more high-priced oil in salt caverns?

The TrimTabs-BarclayHedge Hedge Fund Flow Report indicates that $1 billion per month flowed into commodity hedge funds in the first three months of 2008. If half of that $1 billion, or $500 million, is invested in oil futures, it is enough to go long 62,500 contracts, which would be equal to 3.3% of notional open interest. But what if oil users shorted enough contracts to counteract that $500 million?

The world consumes 85 million barrels of oil per day. At $131 per barrel, the world is paying $11 billion per day, or $334 billion per month, to oil producers. If oil prices fell back to $80 to $90 per barrel--prices at which almost all alternative energy schemes are profitable--the world would save $105 billion to $129 billion per month on its oil bill. Is that savings not worth shorting $500 million in oil futures per month?

They sell or buy the current contract to close it out and roll into the next one.

Its the crooked Russians doing it.

Check out this article on Putin:

Putin “effectively” controls 37% of the shares of Surgutneftegaz, an oil exploration company and Russia’s third biggest oil producer, worth $20bn, he says. He also owns 4.5% of Gazprom, and “at least 75%” of Gunvor, a mysterious Swiss-based oil trader, founded by Gennady Timchenko, a friend of the president’s, Belkovsky alleges.

http://www.guardian.co.uk/world/2007/dec/21/russia.topstories3

Wonder why Putin owns a oil trading firm???

Russia is not even a real country. Its a criminal enterprise.

John

Very Telltale..........Questions??

Gas at $4.00 a gallon. Who's to blame?

Thanks to the environmentalist lobby and its influence on Democratic legislators in Congress, the U.S. has, for decades, been prohibited from drilling for oil in places that we know contain billions of barrels of proven reserves.

Check out this map:

All of the "NO" zones are places where the U.S., thanks to the Democratic Party, is prohibited from drilling for oil.

But wait - it gets better.

*** China, Cuba, Canada and others continue to drill off our shores where U.S. companies are not allowed to drill because of
Democratic Policies!

Yes, that's right: China and Cuba are actively exploring oil fields 50 miles from Key West, Florida while U.S. companies are barred from working in this area because of U.S. policy. So, instead of allowing the most environmentally responsible companies to operate there and increase our domestic supply, China, who has a dismal environmental record, is preparing to suck our close, lucrative oil reserves dry.

Unbelievable!

Investor's Business Daily recently explained how irresponsible the Democrats have been on the energy crisis. They lay into what they consider to be the worst Congress ever for Failing to allow drilling in ANWR. We have, as President Bush noted, estimated capacity of a million barrels of oil a day from this source alone -- enough for 27 million gallons of gas and diesel. But Congress won't touch it, fearful of the clout of the environmental lobby. As a result, you pay through the nose at the pump so your representative can raise campaign cash.

Refusing to build new refineries. The U.S. hasn't built one since 1976, yet the EPA requires at least 15 unique 'boutique' fuel blends that can be sold in different areas around the nation. This means that U.S. refinery capacity is stretched so tight that even the slightest problem at a refinery causes enormous supply problems and price spikes. Congress has done nothing about this.

Turning its back on nuclear power. It's safe and, with advances in nuclear reprocessing technology, waste problems have been minimized. Still, we have just 104 nuclear plants -- the same as a decade ago -- producing just 19% of our total energy. (Many European nations produce 40% or more of their power with nuclear.) Granted, nuclear power plants are expensive -- about $3 billion each. But they produce energy at $1.72/kilowatt-hour vs. $2.37 for coal and $6.35 for natural gas.

Raising taxes on energy producers. This is where a basic understanding of economics would help: Higher taxes and needless regulation lead to less production of a commodity. So by proposing 'windfall' and other taxes on energy companies plus tough new rules, Congress only makes our energy situation worse.

These are just a few of Congress' sins of omission -- all while India, China, Eastern Europe and the Middle East are adding more than a million barrels of new demand each and every year. New Energy Department forecasts see world oil demand growing 40% by 2030, including a 28% increase in the U.S.

Americans who are worried about the direction of their country, including runaway energy and food prices, should keep in mind the upcoming election isn't just about choosing a new president. We'll also pick a new Congress.

If you agree with the need to let the American people know who’s REALLY responsible for the sky-high gasoline prices we’re seeing today, please tell everyone you know about this situation.

If we elect a liberal Democrat as president in the Fall and keep the same Democrat-controlled Congress, nothing will change except gasoline prices, which will keep going up.

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