[MonteQuest]

Sorry, but to deny political manipulation for an even more valuble commodity in the food chain, oil, just doesn't square with common sense and right reason.

Do some homework.

The reason people fall for the feel-good accusation that President Bush manipulates oil prices is that they don't follow the oil futures market or even understand how it functions.

[MonteQuest]

I know you have a farming background, and I defer to your knowledge in that venue, but, in your words-- good lord--even farm commodities are MANIPULATED vis a vis subsidies and all sorts of state interventions in the 'free market". The price of milk, for instance, is rigged in my neck of the woods, by govt edict no less. Of course, the farmers are the ones who generally get reamed in the deal, not the ADM's of the world, but that's how our masters have seen fit to mete out their mercies.

My analogy of the farmer and corn applies to any commodity.

There is a great deal of differnece between price subsidies and outright manipulation of the buying and selling of commodities.

How do you force people to sell their retirement mutual funds to drop the price of gas?

Do you think mutual funds just ignore the fundamentals?

[firestarter]

Do some homework.

Like reading the senate. gov link? I did, but I also considered the source.

[MonteQuest]

Do some homework.

Like reading the senate. gov link? I did, but I also considered the source.

Ad hominem attacks don't win arguments.

Refute the facts.

[firestarter]

My analogy of the farmer and corn applies to any commodity.

There is a great deal of differnece between price subsidies and outright manipulation of the buying and selling of commodities.

I'm WAY!!! past my bed time. I'm going to sleep on this and respond tomorrow --today-- with a clearer head.

[firestarter]

Do some homework.

Like reading the senate. gov link? I did, but I also considered the source.

Ad hominem attacks don't win arguments.

Refute the facts.

I wasn't attacking YOU, I was poking fun at the source (senate.gov). Ad hominem rebuttals aren't my style here or anywhere.

[jbrown]

If my numbers are even close than I don't think manipulation of the oil markets is such a strange possibility.

How are you going to spread this around the world over three different exchanges without anyone noticing?

I don't know. Are these markets that transparent? If I wanted to know who large buyers in the commodity market are is that info available? Does the futures market disclose inside buyers? I don't know these things.

[MonteQuest]

I wasn't attacking YOU, I was poking fun at the source (senate.gov). Ad hominem rebuttals aren't my style here or anywhere.

No, you were attacking the source with an ad hominem.

You can't discredit the facts by just criticising or poking fun at the source.

You must refute them as well.

[MonteQuest]

I don't know. Are these markets that transparent? If I wanted to know who large buyers in the commodity market are is that info available? Does the futures market disclose inside buyers? I don't know these things.

Yes.

Also remember, if you are going to dump oil futures to drop the price, you must own them first.

“It also raises the question, if we’re dropping gas prices now, why on earth did we raise them to $3.50 before?”

Is that not a good question or what?

If the govt/republicans aren't doing the selling, who is being forced/manipulated to dump their oil futures?

[firestarter]

Actually, the Goldman Sachs angle regarding manipulation offers a strong prima facie case for politically motivated market interventions.

From the NYTimes:

Politics and worries about oil supplies may have caused gasoline prices to go up at the pump earlier this year, but one big investment bank quietly helped their rapid drop in recent weeks, according to some economists, traders and analysts.

"They started unwinding their positions, and those other longs also rushed to the door at the same time," said Lawrence J. Goldstein, president of the Petroleum Industry Research Foundation. The August announcement by Goldman Sachs caught some traders by surprise. The firm said in early June that it planned to roll its positions in the harbor contract into another futures contract, the reformulated gasoline blendstock, which is replacing the harbor contract at the end of the year because of changes to laws about gasoline additives. Later in June, Goldman said it had rolled a third of its gasoline holdings into the reformulated contracts but would make further announcements as to whether the remainder would be rolled over. Then in August, the bank said it would not roll over any more positions into gasoline and would redistribute the weighting into other petroleum products...

You wouldn't presume to rule out the possibility of Paulsoneske political pressure here? Lord, there was a sell-off of more than $6 billion in gasoline futures contracts? I'll put it this way, a $6 billion trade is not decided on at the lowest levels of the firm. Hank P was nominated by Bush on June 19th. REASONABLE people can draw various plausible conclusions, including MANIPULATION AT THE POLITICAL LEVEL, relative to these facts.


Twenty year trader, Peter Stojan also sniffs out nefarious bits and pieces in the GSCI moves:

But some just don't believe these kinds of manipulations go on. I have had some email discussions in recent days with some pretty sophisticated economists who don’t believe Goldman has manipulated the gasoline market. Their argument goes: "I will continue to be an economist and look at the supply and demand issues."

My reply has been, Goldman Sachs understands supply and demand – and they also understand trading. When you sell-off $6 billion in gasoline futures contracts, you are going to have an impact – as the New York Times story correctly pointed out. That is an awful lot of supply. Further, this type of aggressive selling will result in selling by others who will receive margin calls they can’t meet. And by trend followers, who will suddenly dump gasoline and other commodities. This is, indeed, exactly what is happening. Goldman Sachs didn’t get to be Goldman by not understanding this stuff. Supply and demand can explain this manipulation completely.

more:

They ask, "Why would Goldman Sachs trade this way and lose money?" The answer here is that Goldman doesn’t lose money. This is a managed commodity index. Goldman manages the index, but the actual money put up comes from institutions, hedge funds and other unlucky saps that trusted Goldman to manage the commodity index as a hedge against inflation – not to bail out of $6 billion in contracts over a few weeks. The result: Unlucky saps – Major losses. Goldman – Zero losses and their man running the Treasury. Which side of this trade would you want to be on?

But, my email correspondents continue on with one more charge: "Are you trying to tell me that refiners are trying to deplete their inventories and leave themselves with real supply problems in the future? That does not make sense to me." In fact, depleting inventories is exactly what refiners would do. If the price of gasoline is plunging in the futures market, they are going to push out the door as much inventory as they can, to make room for the new cheap gasoline they can buy up on the futures market.

Bottom line, Goldman had to know they were going to plunge gasoline prices short-term with this type of trading. This smells to me like a Paulson operation all the way. He is the ultimate behind the scenes operator if there ever was one, and future biographies of him are very likely to note such.

Now it may be hard to swallow for some that market manipulations go on, but they do at all levels. Penny stock promoters cook up their schemes, and power players have their schemes. In traders jargon, it’s called painting the tape.

The 100 billion dollar commodity market can be jiggled any which way to Sunday by the 60 trillion dollar financial market players such as GS or MS, just to name a few; and for benign and not so benign political reasons to boot. Hell, Clinton's ex SEC Chairman wrote a tome on the utter unscrupulous behavior of the markets and their exteme bias toward INSIDE INFORMARTION bearing traders and players.

One more thing, manipulation has been tacitly acknowledged by non other than Ben Bernanke himself, back in an Aug senate hearing. When Rep. Paul asked him about what has become known as the Plunge Protection Team, Mr Bernanke offered no denials, but added that their minutes were not kept for govt oversight. Wonder why?

[Revi]

We were able to keep the price of a barrel of oil down long enough to defeat the Soviet empire, so what's a little dip in the price of gasoline? I'm sure the Romans were able to pass out extra bread and have some extra circus when it was needed, regardless of the state of the wheatfields and the silver mines. We are just being given some extra rations of gasoline to hold it all up for a very short time. Then the real fun begins...

[JustinFrankl]

Monte's relatively thorough post notwithstanding, there are several signals to me that suggest the recent gas price drop is artificial. There is something statistically unnatural about its lack of volatility. A drop in gas prices, if artificial or engineered, could also take down the oil price.

If so, what is the mechanism to do so?

Smarter and more experienced people than I have tried to prove the existence of market manipulation. It is yet another trip down the rabbit hole, with more red pills. Dale Allen Pfeiffer takes a stab at it at The Mountain Sentinel, scroll down to "Is Anyone Else as Suspicious as I about Oil Prices".

You want a general answer? Power tends to corrupt, people aren't always trustworthy, and there is lack of transparency in the markets. This doesn't mean it always happens. This does mean it will happen from time to time.

Is it in fact happening now? You want to know exactly how such a thing would transpire in the oil markets? Working on it.

“It also raises the question, if we’re dropping gas prices now, why on earth did we raise them to $3.50 before?”

Is that not a good question or what?

It's a rotten question, and a fallacious argument. Christ I hated logic, now I've gotta go read up on logical fallacies again. Circular reasoning, or begging the question. It does not actually answer in any definitive way "we cannot manipulate gas or oil prices, and here's why". It does not state "gas or oil prices can't be manipulated by anyone, and here's why." It assumes that since they'd never do something like raising gas prices, then they're also not making them fall. The very assumption about the manipulation of gas prices is never tested or addressed.

Think that's right. I hate cold medicine. I am blaming my mood and any ommissions or errors on the fog of antihistamines.

[o2ny]

2 tactics I could see as market manipulation devices in this latest price drop:

- Press release of Chevron deepwater test results arriving in the media at a time where the oil price is already experiencing a down-draft due to end of summer and no hurricanes. Releasing this news at this exact time seemed to have an 'intelligence' behind it as it was a huge, crushing 'kicking it while its down' blow to the oil bull rally.

- Iran. All summer financial headlines like 'oil climbs on Iran tensions' ran rampant. All of a sudden the tensions have petered out, even though fundamentally not much has changed. Is it possible that 'backing off from Iran' is a deliberate tactic to 'calm' the oil market?

My main point here is that no actual buying and selling needed to take place for these tactics to have an effect... news can influence the market just as much as directly moving huge amounts of money around.

I also think it doesn't follow that just because downward manipulation is occuring, that said manipulators would have also been responsible for raising the price. Logically, the upward pressure could easily have been natural market forces, while the move down was 'influenced' in some way.

If it is being manipulated downward however, i've heard the analogy that it's like 'holding a balloon underwater'... meaning it takes quite a bit of effort and when you let go, well- we all know what direction the balloon goes and how fast after that.

[MonteQuest]

It also raises the question, if we’re dropping gas prices now, why on earth did we raise them to $3.50 before?”

It's a rotten question, and a fallacious argument. Christ I hated logic, now I've gotta go read up on logical fallacies again. Circular reasoning, or begging the question. It does not actually answer in any definitive way "we cannot manipulate gas or oil prices, and here's why". It does not state "gas or oil prices can't be manipulated by anyone, and here's why." It assumes that since they'd never do something like raising gas prices, then they're also not making them fall. The very assumption about the manipulation of gas prices is never tested or addressed.

Well, I think Tony Snow is saying, "How could we sell if we didn't buy?"

Or, why did we allow prices to go up in the first place if we can manipulate them?

Because if it wasn't the govt that bought up oil futures and raised oil prices, then it was someone else.

How did they get those "someone else's" to sell their oil futures to drop prices?

[MonteQuest]

My main point here is that no actual buying and selling needed to take place for these tactics to have an effect... news can influence the market just as much as directly moving huge amounts of money around.

Oh, someone had to sell in order for oil futures to go down. The market moves by trades buy/sell. If your point is that the govt /repubs themselves didn't have to sell anything, true.

But yes, the price went down due to many factors in the news or not in the news:

1. The end of Katrina effects (almost)
2. The end of the Israeli/Lebanon conflict
3. A mild 2006 hurricane season
4. The end of the summer driving season
5. Simmering of the Iranian nuclear debacle
6. Profit taking

And if there is a govt spin factor, it is the big Gulf oil find re-trotted out from 2004.

Good news, even if it's old, affects the markets.

However, any serious oil future's trader who did his homework saw that news debunked rather quickly.

The speculation factor has diminished.

News, or lack of it, is hardly market manipulation.

[NEOPO]

I agree - I want to say 80% "normal" market activity and 20% other factors such as SPR, Goldman sachs move, "new" gulf find etc etc.
At this point in my peak oil education I find it is hard to rule anything completely out.
The only thing I truly believe is that any engineered price drop was not done to get votes!!!

[MonteQuest]

Of the reasons I listed, I think this one has had the most effect.


What’s behind the Meltdown in the Commodity markets?
Unwinding the $15 per barrel Iranian ‘War premium”

The most influential driver behind the CRB’s plunge since August 8th however, was the unwinding of the Iranian “war premium” which had inflated the price of crude oil by as much as $15 per barrel this year. Iranian negotiators have skillfully split the British, French and the German coalition away from the Bush administration’s hard-line stance for economic sanctions against Iran.

Without the imposition of UN sanctions or the threat of military action against Iran, crude oil succumbed to the laws of supply and demand. US stockpiles of crude oil were 327.7 million barrels last week, or 18% higher from two years ago, when crude oil was trading at $45 per barrel. Unleaded gasoline prices tumbled 65 cents a gallon since August 1st, and boosted US President George Bush’s approval ratings by 3% to 41% last week, with seven weeks left before mid-term US elections in Congress.

Crude oil traders are beginning to view the Bush team as a paper tiger in dealing with Iran. Other traders think the gloves will come off after the US Congressional elections on November 7th, when whispers of a US military adventure could grow louder. In any case, China’s crude oil imports rebounded 15% to 11.8 million tons in August, which could put a floor under the market at $60 /barrel.

Link

So, we blame the manipulation on Iran?

Now, that's a poor bet.

[seahorse]

I'm linking an interesting article done by Matthew Simmons in the 90s which came to the conclusion that a few speculators could manipulate, and had manipulate in the past, oil prices - in fact to drop them for a period of months. Read the article and see what you think in relation to the recent oil price drop before the November 06 elections.


Simmons Paper

[MonteQuest]

If this is true, the world’s most important commodity is being priced by a handful of hedge funds or individual speculators who, as a group, invest less than $100 to $150 million at any period of time.

This kind of narrows the field to own hedge funds to: accredited investors who have a net worth of at least one million US dollars or have made at least $200,000 dollars each year for the last two years ($300,000 with his spouse if married) and have the expectation to make the same amount this year.

And to republican/neocon holders.

No Democrats own hedge funds?

Not.

If 15% of the market was event-driven speculation ( as touted ad naseum in the run-up) how much od the decline is hedge-fund driven ?

Some?

How much is news-driven?

I think a lot, if not most.

And if you read the piece by Simmons, you see these hedge fund movements are in a effort to make money.

So, if ordered by the powers that be to sell, someone is losing money depending upon whether he is long or short in the market, right?

As Simmons points out:

This does not mean that these speculators are necessarily wrong in their bearish views.

And finally:

Why Should the Funds Have Such Heavy Influence on Crude?It seems hard to believe that the buying behavior of a small group of hedge funds could actually move the price of a commodity as important as crude oil. After all, it is the world’s largest single traded commodity both in terms of dollars changing hands and in daily volume.

Throughout this period, the commercial buyers generally held three to four times as many contracts. So why would they not be the big drivers of crude prices?

The answer is that few, if any, of the significant commercial traders are charged with betting on the future direction of crude. While the commercial traders do watch the technical charts and attempt to minimize daily losses or make reasonable trading profits, few have the mandate (or the temperament) to make a heavy bet on the direction of crude prices. In fact, a number of the large industry traders have company policies which preclude being able to “bet on the future of oil."

But the funds are clearly a horse of a different color. Their huge shifts between holding big short and big long positions clearly indicate this. Both the velocity and magnitude of their swings, often occurring in a handful of weeks, have become the proverbial tail wagging the dog or Archimedes’ famous lever, which moves perhaps not the entire world, but certainly the world of crude.

And...

It could turn out that the biggest influence on 1998 oil prices will be whether OPEC actually has enough spare capacity to make up for the probable shortfalls of the anticipated non-OPEC supply increase. If OPEC can easily add the new supply, the funds will likely view this as further cheating by OPEC, thus supporting their bearish view. But, if such spare capacity does not exist, the oil markets could get really tight as the year progresses.

Bear versus bull and spare capacity.

[joewp]

If this is true, the world’s most important commodity is being priced by a handful of hedge funds or individual speculators who, as a group, invest less than $100 to $150 million at any period of time.

This kind of narrows the field to own hedge funds to: accredited investors who have a net worth of at least one million US dollars or have made at least $200,000 dollars each year for the last two years ($300,000 with his spouse if married) and have the expectation to make the same amount this year.

And to republican/neocon holders.

No Democrats own hedge funds?

Not.

If 15% of the market was event-driven speculation ( as touted ad naseum in the run-up) how much od the decline is hedge-fund driven ?

Some?

How much is news-driven?

I think a lot, if not most.

And if you read the piece by Simmons, you see these hedge fund movements are in a effort to make money.

Monty, money knows no party. A lot of these large speculators are also large brokerages too, who don't care who's in power unless it will make them make money. Right now with the Republicans in power, there are very favorable investment tax laws in effect. The Democrats say they will raise the low cap gains tax and re-instate the tax on dividends and extend the inheritance tax. That will cost these funds/brokers and their clients of any party a lot of money, much more money than any (relative) pittance they might lose in the crude market. But they're not losing all that much, anyway.

How much is news driven? Right now, not much. Even bad news makes the price go down. Once winter demand kicks in, we'll see the price go up over $70 as the commercials have to buy more and the funds have to cover their shorts on the way up. But that will be conveniently after the election.

And in answer to Tony Snow's question earlier as to why the price of gas went to $3.50 before...

To make money, Tony. Of course.

Anyway, this kind of market volitilaty is exactly what's predicted by Hirsch, among many others, as we near or pass peak.