By Chris Cook, former compliance and market supervision director of the International Petroleum Exchange
A generation of markets is dying and the era of the Middleman is coming to an end. The ‘Bezzle’ – as J K Galbraith described financial misbehaviour in a boom, revealed by a bust – is now coming to light.
We now see a wave of popular rage against the freshly revealed manipulation by banks of LIBOR, the London Interbank Offered Rate benchmark for interest rates which is the cornerstone of the money market.
This manipulation in the financial world is being augmented by a groundswell of protest against manipulation taking place in the real world. Here, the allegation is that the Brent/BFOE (Brent, Forties, Oseberg, Ekofisk) crude oil benchmark price, against which global crude oil prices are set, is the subject of routine manipulation by market participants, particularly investment banks and traders of physical oil.
In both cases, the popular outcry is based upon misconceptions as to what has actually been going on. The good news in the oil market at least is that the manipulation which is being revealed is nowhere near as serious in its effects on the general public as is believed. The bad news is that the true manipulation, as yet still concealed, is far more serious than anyone has yet conceived.
They Shoot Horses, Don’t They?
The current LIBOR pogroms are the regulatory equivalent of flogging a dead horse. The Interbank money market in wholesale lending had a heart attack in 2007 and essentially died in October 2008 with the collapse of Lehman Brothers. The money market is now on life support directly to central banks and to all intents and purposes there is no independent Interbank Market in money and there never will be again.
LIBOR is dead, and the markets are moving on.
The Brent/BFOE crude oil market benchmark, on the other hand, has been in failing health for a long time as the North Sea oil production upon which it is based has been in secular decline. Despite the best efforts of Platts – the Price Reporting Agency who are getting most of the flak – the market is at the point where if it were a horse it would be put down.
Market Manipulation
A regulator friend of mine used to joke that since excessive market manipulation is a US felony, the implication is that there is such a thing as ‘acceptable’ market manipulation. My response was that trading might be defined as ‘acceptable market manipulation’.
While producers desire a stable high price, and consumers desire a stable low price, for a trading intermediary who aims for transaction profit, price stability is Death, and the only bad news is no news at all.
I am not familiar enough with the endemic LIBOR manipulation to say much about the victims and their losses. But I can say that from its inception in the mid 1980s crude oil trading and the associated fun and games in the Brent/BFOE complex of contracts have taken place entirely among consenting adults. The outcome of the routine short term ‘micro’ manipulation by oil market participants has been pretty much a zero sum game between trading intermediaries.
Some of these middlemen are traders of physical oil like Vitol and some of them are the ‘Wall Street Refiner’ traders in investment banks such as Goldman Sachs. There have been no direct effects from these continuing trader games on the man in the street, but there are indirect effects such as the higher cost of energy investment arising out of unnecessarily high market price volatility.
Whenever producers or consumers can gain market power, through some kind of leverage, to either support or suppress prices in the medium and long term, then they will. The history of markets is full of examples of such ‘macro’ market manipulation and while LIBOR is among them, that is only now of historic interest, now that the market is dead. In crude oil, on the other hand, we are approaching the end of the greatest macro market manipulation in the history of commodity markets, by comparison to which Yasuo Hamanaka’s $2bn manipulation of the copper markets through Sumitomo is a car boot sale.
Cui Bono
Ask yourself who benefits from high oil prices? It’s the producers, stupid. From 2005 onwards a market bubble in crude oil has been deliberately created. This has been achieved opaquely through use of the Prepay funding used by Enron to sell commodities at a discount for cash now, and deliver them later.
Creditors and investors who were unaware of Enron’s ‘off-balance sheet’ liabilities were misled as to the true financial position and were thereby defrauded. Most oil market participants have been similarly misled as to the true position in the oil market through the use of prepays by producers, funded by passive investors.
In simple terms, risk averse investors have lent dollars to producers, and producers have lent oil to investors. None of the resulting changes of ownership of oil in the physical market were visible to other market participants, and the price has become a completely distorted and financialised bubble as a result.
The bubble first collapsed during the second half of 2008 from $147 to $35 per barrel and it was then re-inflated in 2009 through the use of prepays, facilitated by US investment banks to the benefit of producers. Oil prices have since been kept pegged as far as possible between levels which: (a) do not endanger US presidential re-election; and (b) enable producer populations to be financially anaesthetised.
A key element in the evolution of this macro manipulation has been that banks as financial intermediaries are no longer capitalised to take risks in the way that they could and did prior to the collapse of the banking system. The outcome has been that market risk – ie the risk that the oil price will fall – is no longer held by the banks but has been transferred to passive and risk averse investors.
The motive of passive investors is not the speculative desire of active investors to make a transaction profit, but its very opposite: the desire to avoid loss. So they invest in oil funds in order to offload the risk that the dollar will depreciate in value relative to oil. Unfortunately, they are blithely unaware that they have a massive market risk if the oil price falls in a market ‘bust’, as it did in 2008; has recently been doing; and will continue to do at least until the end of the year. This is a regulatory accident waiting to happen.
Napsterisation
The direct ‘Peer to Peer’ connections between producers and consumers which were first demonstrated by the music file-sharing phenomenon Napster have also been evident in the financial markets for some time through Peer to Peer lending businesses such as Zopa, and the new phenomenon of ‘crowd-sourcing’ of investment and donations.
But it is not widely understood that in financial services, the transition of middlemen to a role as service providers managing risk, business platform and direct P2P relationships is actually in the interests of the middlemen themselves. The reason is that when credit or market risk is with end users, then the only capital needed by service providers is the limited amount necessary to cover operating costs.
This is precisely why investment banks starved of capital have since 2008 been originating and selling the new generations of funds responsible for the bubbles, where the market risk is with the investors, and not the banks. Unfortunately they have also been able to prey upon end users through their privileged ‘asymmetric’ access to markets and market data and through trading such as ‘High Frequency Trading’ (HFT).
Intermediaries are also responsible for short term micro manipulation, but they are not directly guilty of the macro manipulation of markets which has inflated the medium and long term market price because they simply do not have the capital to invest in this way any more, even if regulators allowed it.
The End Game
Once the current bubbles collapse, which is only a matter of time, I believe that we will see markets evolve to the next ‘adjacent possible’, which will be the widespread – and necessarily transparent – use of direct Peer to Peer relationships through a new generation of market instruments, of which Enron’s Prepay was the first.
This return to what is in fact an ancient form of financing and funding will complete a cycle which began some 300 years ago when modern money and capital markets began with the foundation of the first Central Banks and the wave of Joint Stock Companies which financed and funded the Industrial Revolution.
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It seems the end is near, but missing from this essay …
Droll, very droll.
..our author missed Gretchen Morgenson (NY TIMES business editor-Sundays)
tell all regarding oil price drive-ups following bushcheney-oil industry secret meetings…specifically, 2001, gas hovered $1.00 per gallon, but by July, 2004,
$4.00 per gallon.
Mortgenson showed Goldman-Sachs held world leading 13.8% of total world oil “futures” market…other “investment banks also held 7-8%, with all Wall $treet banks in total controlling around 48% of ALL world oil futures…Goldman sold off 1/3 in August, 2004, frightening others who had all been selling parts of their futures back and forth to one another (rolling them over), raising price at each trade-done with commodities in 1890’s-see “Wall $treet-A History”=Geisst..
Goldman attempted to allay fears of others, offering to buy into bio-diesel or blended fuels, but in September, sold off another 1/3, which panicked other “speculators”, who all sold–just in time for bushcheney November reelection..
Yep;
BTW, has anyone tried a FOIA as to who/what was exactly said/done at these CrimeFamilyMember Traitor/Felon Treasonous Cheney/Bush “Secret” Energy Policy meetings? — I recall hearing drips and drabs over the years, and perhaps many meetings were done on the down-low (at private residences/retreats, etc) ..and likely most was never written down or recorded in any way, shape, or form?
I mean, I’m sure all major OPEC players were present, and Cheney kissed the hand of, and genuflected before the King, etc …
Oh wait! That’s right! ..then that little distraction we call 9/11 happened – I almost forgot.. NOT!
Love
Anent: “re-inflated in 2009 through the use of pre-pays” (the Enron Way). Follow the Golden DNA Dynastic Thread of organized crime from Silverado through Enron through TARP 2008 and beyond; and cry treason.
Clearly, The Enron Way is a crooked path away from free trade and the Market.
This piece should have concrete consequences. Suggested is that Norway become the Touchstone for Discovery of Price in terms of the New Standard Mega Chit (derived from composite of currencies whose relationship is set at a designated ratio at a designated time certain); AND that it become the New International Oil Market Exchange on the ground, featuring Trading Transparency via POSTED B/A (hence HFT disallowed: speed of computers strictly limited); AND that there be Officially Identified Specialists on the floor of the Exchange; AND that each and every trade be tagged with the I.D. number of each and every Trading Agent, with the requirement that every Specialist and Trading Agent be Registered (by name and I.D.) with the New International Oil Market Exchange. Under NO circumstances should there be any risk that the B/A and the Trading Agent are undiscoverable at any time.
We must establish the NIOME, without further didering ado, from a CONCRET place of CONCRETE trust, responsibility, liability, and risk management inherent in the specifications above. Neoconlib Pie-in-Sky is OVER, Q.E.D.
Very much appreciated are the author’s re-combining of Dylan Thomas and Horse Racing/Veterinary Science allusions in framing this trenchant piece.
Note: the DETERMINED relationship of the currencies used to derive the NIOME “Chit” must carry with it the proviso that it cannot be gamed through currency manipulation and/or “derivatives/”insurance” rackets within the NIOME System: the “Chit” must have abiding internal coherence and integrity, ensured through I.D. Tag Tracking of the Trader-by-any-Name who is connected to these currencies, including the makers of computer programs, both within and without the NIOME System. The Director of the System must be a proven, experienced, successful expert in the domain of White Collar Crime and Organized Crime (RICO), one whose integrity and purpose are universally recognized.
Was the petrol price rigged too?
Motorists may have been paying too much for their petrol because banks and other traders are likely to have tried to manipulate oil prices in the same way they rigged interest rates, an official report has warned.
more
http://www.telegraph.co.uk/earth/energy/fuel/9401934/Libor-scandal-Was-the-petrol-price-rigged-too.html
See William F. Engdahl on the creation and rise of the “petro-dollar” and make an educated guess to answer your question, within the frame of:
“A CENTURY OF WAR: Anglo-American Oil Politics and the New World Order” -New Edition – by F. William Engdahl (edition.engdahl, 2011; 1992, 2004, 2011).
I hate these “oil speculation” articles. They heavy on conspiracy theories and light on any concrete evidence.
The reaction from the peanut gallery is even more annoying. The way they consistently jump up in indignation you’d think a spring had come right through their armchairs.
@A Real Black Person
I hate oil speculation articles too, and have been debunking them for a long time.
This article is not actually about speculation, but the fact that it is the complete opposite of speculation which has caused the bubble in price.
Since the price of oil has tripled since 2003, but the global production of crude oil has remained pretty much the same the whole time, I call BS on your thesis.
If the price of oil were lower than it is, then the world would want to use more oil than is being produced.
I have been a subscriber for years to the principle that there is a peak rate of production of oil, and that the long term price trend is up.
My point is that the market swings wildly between an upper bound where demand is destroyed and a lower bound where production is shut in, and that these booms and busts are the outcome – across markets – of the present dysfunctional market paradigm.
How do you account for the collapse from $147/bbl in July 2008 to $35/bbl in December 2008?
If you think the price trend is up, then I’m not sure what all the fuss is about. Markets tend toward extremes. Markets “over-correct.” The extremes are rising in the case of oil. $20/barrel was considered extremely expensive not very long ago. Now it’s only a dream. That’s the story, not that the market swings back and forth. Did the recent price drop even make it into the 60’s? The prized power to manipulate the market lower seems to have been diminished greatly in whoever once possessed it.
When the market collapsed in ’08 it popped right back up again too. If WTI had remained anywhere near $35 then we would have to ‘account for’ this collapse. But no, we can just call it another wild swing, to the downside. This is what we have to account for: Why global crude production plateaued as the price of oil tripled over the past decade.
I’m with robert157 on this one;
Have a nice look at this thesis/presentation;
http://www.c-spanvideo.org/program/280270-3
Love
sir,
you need to get out more-please review my response #2 to this dialogue, and this:
http://www.mcclatchydc.com/2011/05/25/114759/wikileaks-saudis-often-warned.html#storylink=cpy
What a great article. I have a neighbor who got out of oil trading over 10 years ago because the whole thing was so corrupt and controlled. And he’s a very aggressive guy. I didn’t understand anything about the markets then. But today nothing in this article surprises me. Cris Cook says, “The bad news is that the true manipulation, as yet still concealed, is far more serious than anyone has yet conceived.” OK then. Not too ominous. He seems to agree with the Mayan calendar on this one. In December all the hedges in oil against the dollar will do what? It doesn’t really look like peak oil right now. Question: did the Whale sell oil futures and just bluff that it was MBS?
Sto, maybe the Mayans and Gnostics knew that Stupidity/Cupidity reaches critical mass for meltdown on a date certain, or not?
Oil speculation and its wild price swings has wreaked havoc on a number of energy intensive industries such as airlines. To allow excessive speculation on a product that is vital to national security and our economy is sheer madness. This deliberate destabilization of a nation borders on treason. Where are the lapel pins when we need them?
next up grain and corn due to the drought
all that cheap hot money from ben
gotta do something with it
better return than actually helping revive the economy they wrecked
b, see Dan Morgan’s “Merchants of Grain” for How it Works for .01%DNA, in perpetuity, thanks to their .99% Agents du jour/du siecle.
Hasn’t a ContiCommodity gury recently come forth to guide us?
Note: “gury” is Freudian “re-combinant” coin of guru and jury.
“Senate gives HSBC an American nightmare” at The Telegraph.
Follow the money and the DNA, connect Mexico-China organized crime Agents greasing the skids for Adelson/The Sands in Macau, with GOP laundered “donations.” Connect Mexican laundry with Carlos Slim Helu, esp. “telephonic” trails to DNA for cash transfers. Connect with Deep State Mena AK, Nafta, Napco Corridor, GATT, Repeal of Glass-Steagall, for Foreign Agents within Government who aided/abetted .01% Profits and their .99% Grift on the sly, FIXED at public expense. Follow Chinese Black Money in Italy (see book, “Gomorrah”); and investigate Monti’s ties with Sicily. Connect Sicily-OSS/CIA.
Deep State is Deep Suck: “That giant sucking sound” we were warned about, way back when, by one who knew buy did not tell. Check out his computer network for Insiders, from Texas through Louisiana and beyond. Connect Papal Rep. Bobby Jindal of Louisiana with British Raj Deep Steel in Tata’s India.
Just follow the money and the DNA. It’s all there.
You missed a dot.
What is missing from all this, if you “zoom out” just a bit, is that high commodities prices (especially oil) makes our debt cheaper; i.e. it increases net capital inflows into the country through the basic trade identity, since oil is denominated in dollars.
….and this break down described in the article is really just another dimension in the break down of the Triffin Dilemma, i.e. the dollar losing its’ reserve status:
http://www.minyanville.com/trading-and-investing/currencies/articles/triffin-dilemma-private-sector-jobs-government/7/9/2012/id/42244?camp=syndication&medium=portals&from=yahoo
Zooming out to look at capital inflows is just believing in the paradigm that insists as we watch and endless pile of trillions go into some financial marketeers voodoo machine of a black hole,It will come out somewhere in a place like home…..but really manipulation just means we pay more.We are the marks who get taught to believe in sophistication.While we ignore that which is painfully obvious.
Chris Cook has been writing this meme for some time, raising the specter of a domino falling which would lead to an oil price plunge for one reason or the other. It is/should be well known that the market is heavily manipulated by the likes of Exxon-Chevron-Goldman et al. Just like the whole capitalist system is. But Cook does not offer any good reason why this convenient and extremely profitable arrangement between the producers, including OPEC, Norway and the majors should fail. Barriers to entry in this oligopolistic venture are virtually insuperable. Cheap electric cars anyone!
The only reason why a price failure will come about is through an economic depression, the likelihood of which at this juncture, circa, 2012-2013 is about 25% max. Governments have a way of bailing out the system, eg, Banks-Insurance comlex(TARP), Health-insurance companies (“Obama-care”), Oil companies (Iraq), The Military-Industrial Complex (Wars since 1950s), you name it. Solving the Oil price breakdown is just road-kill. All the Saudis need to do is lower production and the price will stabilize around $85-90.
There needs to be more mature analysis with evidence and data and about this issue on this blog
@kaj
The market is over-supplied by between 2m and 3m per day at the moment, and has been kept supported by financial buyers building stocks and reserves as a physical hedge.
The Saudis drastically cut production in 2008 as the price fell and it did not stop the collapse until the price reached $35/bbl.
History does not repeat itself, but it does rhyme.
The oil price will be managed down in the next few months with two outcomes in view.
Firstly, to deliver sub $2.50/gallon gasoline before the US election.
Secondly, to crucify Iran, Russia and Venezuela with sub $60/bbl oil, and for the market – rather than the manipulators – to take the blame, leading to political unrest at least, and regime change at most.
Dumb person question: how do things like Prepay inflate the price of crude? And, if it works now, why do you expect a crash in the near future?
David
Simple.
If a producer can get the dollars he needs by selling rights to oil in the ground to investors, instead of selling and delivering oil to refiners, then the same number of physical buyers are now chasing physical oil from other producers.
So the price for physical oil rises.
Conversely, when prepay unwinds, buyers take delivery of oil for which they have already paid, and there are then fewer buyer dollars chasing the same amount of crude oil available for delivery.
So the price would tend to fall.
It’s interesting how your comments ignore the fact that EROI on oil fields in general is declining. It seems like you would rather hold onto the fantasy that the nationalists, Wall Street hedge funds, and the oil companies are witholding cheap oil from you and your family, as if it the real cost of a gallon of oil could still be $1–if only “WE” were in charge instead of “THEM”.
I suspect your article is just propaganda to drum up support for continued U.S. military action in foreign countries in the hopes that it will lower oil prices. Interestingly enough, though, the U.S. military is the single largest consumer of oil on the planet. The larger it grows, the more activity it generates, the more oil it uses, the larger the U.S.’ trade deficit grows…because no one is really paying for the war and all that oil the military uses.
Your comments about oversupply are outright deceptive. A depressed global economy is going to use less oil than it normally would have with higher employment levels. Think about all the unemployed people out there who aren’t consuming oil or products made from oil–which is close to everything.
The oil supply is tight. The developing world, including countries that export oil, have been increasing their consumption of oil very rapidly for the last ten to twelve years. Their consumption has NOT gone down. The consumption of oil in developed countries, except for maybe Japan, has been decreasing for the last ten to twelve years. The reason is simple, there is gradual capital flight from first world economies to developing economies. Large parts of the First World are becoming what Detroit is now, where the level of capital will be insufficient to provide anything close to full employment and tax revenue.
The world does not have an oversupply of oil. Traders are not witholding large amounts of cheap oil from the global market. Stop telling the most ignorant of those amongst us what they want to hear. Stop echoing their conspiracy theories. It doesn’t make you look informed.
ARBP,
While only the terminally naive would trust US intentions anywhere on any wealth/power issue, and it of course should be up to the owners of a resource to set the price and other terms of development for that resource (until such time as a valid global government determines otherwise for the global public interest), and even though it is evident that we really have no idea at what level a real, competitive market would set the price, it remains the case that at this price, in these times, and in this market, there is a substantial glut in oil supply – and one likely to last, subject to US/Saudi dictat.
And please note that stomping on Iraq and Iran and Libya and Sudan et al has provided the cover for much higher prices for most of a decade, not lower, prices which benefit US global oil majors, US producers of all sizes pumping their own 5 billion bpy and of course Wall Street/London/Central Bank financial thugs. Iraq and Iran are geopolitical and $$ extraction cards of the first order and are viewed both as strategic reserves to be tapped as needed, or denied others.
Not least, the world absolutely must get off toxic carbon economies no later than 2030 or it’s game over for all of us – any country fortunate enough to have oil resources ought right now to be using that money to adopt radical sustainability as its top priority, and jettison not only idiocies like Dubai, but the entire late 20th century model of “civilization” exported to the world on an endless loop of US commercial entertainment.
@ARBP
It might be helpful if you actually read what I wrote.
Why, if your view of oil market supply and demand is correct, did the oil price collapse from $147/bbl to $35/bbl in six months in 2008?
Pleas answer the question.
My forecast is that the oil price is going to fall – again – and then get pumped up – again – rinse and repeat.
That is my view of the reality, and if it is inconsistent with your analysis then time will tell who is correct.
Having recently returned from eight days in Iran advising their government on energy policy I find your comments re ‘propaganda’ completely hilarious.
“Why, if your view of oil market supply and demand is correct, did the oil price collapse from $147/bbl to $35/bbl in six months in 2008? Pleas answer the question.
”
You really don’t know. You have got to be kidding. That was due to a little concept called “demand distruction”. Oil use went down as gloobal economic activity decreased. The reason why oil prices collapsed were the same reasons why housing prices collapsed in some areas; demand collapsed. Very few people could afford to live in newly constructed home in exurbs far away from any source of employment.
“My forecast is that the oil price is going to fall – again – and then get pumped up – again – rinse and repeat.
That is my view of the reality, and if it is inconsistent with your analysis then time will tell who is correct.”
The volitility in oil prices reflects more frequent recessions as the global markets keep bumping into limits on oil consumption. Higher oil prices will prevent the u.s. from recovering its losses in the housing markets and attracting a significant number of new buyers because many of the suburban housing developments were only sustainable when the cost for fuel was $1 and jobs were plentiful. In a global economy, those conditions are impossible to re-create. Only the upper ten to twenty percent of income owners could possibly afford to buy homes in the middle of nowhere and they’re not buying homes.
“populations should be compensated with a carbon dividend of (valuable) credits returnable in payment for energy. ” That only works as long as oil prices don’t increase too much. If they increase too much then buyers cut back on the amount that they buy, which makes it harder for the government to pay out dividends, ususally in the form of garanteed jobs or welfare. Higher oil prices hurt the economies of oil exporters in the long run and lower oil prices make extracting dwindling or more expensive oil supplies uneconomic. Oil prices will continue to be volatile but they will never fall during an upswing in economic activity. Without diversification or a degree of self-sufficiency, oil exporting countries can never be stable for long.
What are the interest of oil traders in the US presidential elections. Do they feel Romney and the Tea Party Republicans might destabalize the system?
Oil companies want to keep the subsidies that make extracting oil in areas where there’s a low EROI, profitable. Any crimes that they commit are crimes that are possible becausse most people think their level of oil consumption is a birthright. It’s not the oil companies that convinced people to drive fuel inefficient cars and to commute further to work. If oil is getting more it is because it’s getting more expensive to extract and because demand is growing faster than supply,and not because of financial speculation. There are much better ways to take advantage of consumers than selling them highly priced oil. Student loans and credit cards have interest. A barrel of oil doesn’t.
Actually, didn’t an oil company work with a car company and a tire company all through the 1920s, 1930s, 1940s and 1950s do just that very thing by carefully physically aquiring and destroying non-oil non-car alternatives all over America?
http://en.wikipedia.org/wiki/National_City_Lines
http://en.wikipedia.org/wiki/Great_American_streetcar_scandal
Mr. Cook,
In a previous exchange here at NC, I argued that prospects for your call for oil at $60 by the end of H1 involved more than the “Iran premium”, or speculation, or the “passive investor” inflation hedge hypothesis you champion, but all were subject to coordinated US policy choice and action, while you stated at that time you did not believe “they” could control markets to that extent.
Given the recent “revelations of collusion” (note no admission anywhere that many scorned-as-conspiracy-nut analysts were right all along – including gold bugs, which for reasons I cannot as a socialist understand are so singularly reviled by purported liberal lefties) involving Central Banks and banksters re LIBOR, or that the same Tier 1 players (JPM, GS etc.)own Markit’s ability to set benchmarks like the PMI indices or set lethal CDS prices (Europe alternately on boil or simmer), do you believe either the reversal of the Enbridge/Cushing pipeline (Canada is now run by oil and banks) or the extension of “Operation Twist” were not managed taps on the brake to keep oil roughly where policymakers want it. Why not? Why any remaining pretense at all that there is a distinction between bankster policy and US (or UK) policy and vice versa?
Quickies, if I may:
1) You suggest “markets” have already moved on. Would we not then expect a false “clean-up” of these practices along with other elements of a faux “turn to the left” or “return to the middle” along with some major printing and fiscal action as the next move, while
2) Your “peer to peer” (who exactly?) systems are set up with the way to manipulate already built in?
Thanks. Geez, one more:
US production has increased by roughly 750 million bpy since 2008. What would be the optimum price for the US to set vis a vis balancing the interests of domestic producers vs cost of imports?
Thanks Mr. Cook.
@Fiver
I have to admit that the physical demand for oil from refiners and sovereign for reserves as a ‘physical hedge’ has kept the oil price higher for far longer than I expected.
Sooner or later this ‘risk premium’ will end and the bubble will deflate, before the price is re-inflated again.
The ‘banksters’ have not inflated this price bubble directly because they do not have either the capital or regulatory ability to do so. But they have been instrumental in providing producers with the funding they need – from passive investors – to support the price, as producers will always do when they can.
Re Cushing/Enbridge the pipeline reversal simply offers a way for land-locked US producers to access higher prices outside the US.
Re 1 and 2 I am saying that within the correct transparent trust framework and using the simple but radical ‘prepay’ market instrument, dis-intermediated P2P markets will be less prone to manipulation and rent-seeking.
Re pricing, my advice to the US is the same as my advice to Iran. ie carbon fuel prices should be set at such a level as to drastically curtail carbon fuel use.
Firstly, domestic carbon fuel and energy prices should be increased to the highest global market level through a suitable carbon levy.
Second, populations should be compensated with a carbon dividend of (valuable) credits returnable in payment for energy.
Third, from the proceeds of the carbon levy invest massively and directly – through ‘energy loans’ denominated in energy – in renewable energy and particularly in energy savings.
Mr. Cook,
Thanks for your reply.
1) Please note my error in lumping the pipeline and Fed issues in a way that conveyed that both were part of applying “taps” to the brake to slow the fall of oil prices (please forgive the occasional lapse given how little time I have to write/type). I meant both were parts of the “management” of the oil price. The Cushing reverse was of course a known, planned, predictable event around which things like timing a strategic “crashing” lower of the oil price at a most opportune time for the insiders actually doing the managing are built around.
Re Climate Change, the news is lethal: nothing will ever match the infinite infamy and shame awaiting the first two (3rd just coming to maturity) post-WWII generations of US/”Western” elites which in their prime years knew the terrible risks posed by CC (NOTE: only 1 among several concurrent, enormous collisions between human activity and the planet) but resolutely refused to stop playing in the infintile techno-consumerist sandbox. It’s simply, finally, horrifically too late to avert catastrophic climate change. Any action now will be about “adaptation”. I will bet my bottom dollar that the very top US planners and decision-makers, public and private, know it. After all, the ” great financial crisis” all-but-obliterated the global environmental movement.
I suggest they are already planning, and acting, on the basis of the nightmare world they know is coming – every corner of the globe with blanket drone coverage; control of all the large remaining conventional oil fields; major showdown underway over control of African agricultural, mineral and other resources just as with Persian Gulf oil resources in an earlier period; effective control of global crop production through Monsanto; and a BS “reformed” financial system featuring breakup of TBTF’s, i.e., the bankers get another massive bailout in return for exiting the businesses they’ve destroyed. And that’s for starters…
I’ve followed the CC debate for 30 years. I’ve believed all along the way, based on what I could read, see, feel, i.e., my own total experience, that it’s happening much, much faster than even the most pessimistic experts were claiming at any given time. And I continue to believe it’s happening far faster even than this understated (for well-known political reasons) yet still dismal consensus view among experts asserts as presented by this top US CC writer:
http://www.commondreams.org/view/2012/07/24-2
Far faster.
Hope to speak with you again. Thanks for taking the time to respond, Mr. Cook.