Leonidas
Thinks s/he gets paid by the post
For the last two years I have been very curious about what has been driving the price of oil. I’ve made a lot of money on oil industry stocks during that time, but the rapid rise in the price of crude never made sense to me. It did not make any sense to claim that the prices were due to the normal market forces.
Everybody that showed up at the market to buy oil found plenty; they just had to pay more every time they went shopping.
I blamed manipulation from speculators who were masquerading as normal commercial market participants. Somebody was out there playing games and doing underhanded and probably illegal things to make a lot of money.
This June, the Commodity Futures Trading Commission, the Federal Reserve, the Securities and Exchange Commission, the Treasury and the departments of energy and agriculture formed a committee/task force to study the dramatic rise in commodities. They would look at supply and demand factors, trader activities, and what impact some of the new traders (i.e., index funds and speculators) had on prices.
Last month the Interagency Task Force on Commodity Markets released an interim report and said, ” …it found that fundamental supply and demand factors provide the best explanation for the recent crude oil price increases.” At the time I was mystified and stupefied at those remarks.
But now it seems that maybe that was not the case after all.
I found the quote I remembered:
What did Vitol do? They sold off their refinery, which weakens their case that they are a normal commercial market participant in the crude futures market, and then busily set about buying oil for what appears to be purely speculative reasons. All done while still claiming to be a commercial participant, and thus dodging a lot of regulations – like how much they can buy on margin.
Vitol is denying all of this and claims that the CFTC has not changed their trading status, and that they are not speculators. Okay…
Vitol is a sweetheart of a company. They were involved up to their Swiss necks in the back door rearmament program that Saddam Hussein had the UN running for him (Oil for Food). They pled guilty to grand larceny in a New York court last year and paid a $17m fine for their “…scheme to pay secret kickbacks to the Iraqi government in exchange for oil under the United Nations' scandal-ridden oil-for-food program.”
They also paid $1M to a Serbian warlord to “convince” a Serb businessman to pay for oil shipped to him under a slightly shady, and perhaps illegal, contract that took place just before the war. The businessman thought Vitol screwed him and sued the company to keep the oil they had shipped before the war. Vitol never accepted the deal, and according to the UK Guardian / Observer, hired some guy named “Arkan” to have a little conversation with the man. The guy paid up, but the circumstances were something out The Godfather.
Anyway, that's the story and I guess we will have to wait until after the conventions and when Congress gets around to going back to work before we get more details.
Everybody that showed up at the market to buy oil found plenty; they just had to pay more every time they went shopping.
I blamed manipulation from speculators who were masquerading as normal commercial market participants. Somebody was out there playing games and doing underhanded and probably illegal things to make a lot of money.
This June, the Commodity Futures Trading Commission, the Federal Reserve, the Securities and Exchange Commission, the Treasury and the departments of energy and agriculture formed a committee/task force to study the dramatic rise in commodities. They would look at supply and demand factors, trader activities, and what impact some of the new traders (i.e., index funds and speculators) had on prices.
Last month the Interagency Task Force on Commodity Markets released an interim report and said, ” …it found that fundamental supply and demand factors provide the best explanation for the recent crude oil price increases.” At the time I was mystified and stupefied at those remarks.
But now it seems that maybe that was not the case after all.
Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.
Vitol popped up on my radar screen a few months ago when I read an article about a Houston based trader for Vitol who was making what some competitors thought were some very strange trades.But when the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.
The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.
I found the quote I remembered:
The trades in question, made by Vitol Capital Management’s Andrew Serotta, made a couple of hundred million in profit. Vitol felt indignant and wrote a letter to the editor:We just watched, thinking they were going to get run over…To a bystander it looked crazy.
Representative Paul Dingell thinks the CFTC was asleep at the wheel.Contrary to your statements, Mr. Serotta has never visited the Geneva office, and he does not take speculative oil positions, an activity that is inconsistent with Vitol Capital Management’s policies. The trading activity and profits attributed to Mr. Serotta as stated in your article are based on faulty assumptions and are entirely inaccurate.
Vitol is not in the business of taking large positions speculating on the rise or fall of market prices, and Mr. Serotta did not trade speculatively on the direction of crude oil prices. Vitol’s business model includes moving physical oil in the global market, identifying global arbitrages in location, timing and quality, and using sophisticated hedging to manage market risk.
The WSJ and Washington Post ran this story last week, and while the CFTC did not name Vitol as the speculator they caught playing games, the WSJ and Post both claim they learned the identity from unnamed sources with inside knowledge of the investigation.It is now evident that speculators in the energy futures markets play a much larger role than previously thought, and it is now even harder to accept the agency's laughable assertion that excessive speculation has not contributed to rising energy prices.
What did Vitol do? They sold off their refinery, which weakens their case that they are a normal commercial market participant in the crude futures market, and then busily set about buying oil for what appears to be purely speculative reasons. All done while still claiming to be a commercial participant, and thus dodging a lot of regulations – like how much they can buy on margin.
And then there is the quote that I really love:The commission investigation showed Vitol was one of the most active traders of oil on Nymex as prices reached record levels.
By June 6, Vitol had amassed contracts equal to 57.7 million barrels of oil, about three times the amount the United States consumes daily. On that day, the price for a barrel of oil spiked $11 to settle at $138.54, per barrel, valuing Vitol's oil holding at nearly $8 billion…The commission's data show that at the end of July, just four swap dealers held one-third of all Nymex oil contracts that bet prices would increase.
Makes me wonder what the analysts have been analyzing.Last month, the commission reclassified a huge oil trader as a noncommercial speculator. Industry analysts immediately began to rethink what might be moving oil prices. (emphasis added)
Vitol is denying all of this and claims that the CFTC has not changed their trading status, and that they are not speculators. Okay…
Vitol is a sweetheart of a company. They were involved up to their Swiss necks in the back door rearmament program that Saddam Hussein had the UN running for him (Oil for Food). They pled guilty to grand larceny in a New York court last year and paid a $17m fine for their “…scheme to pay secret kickbacks to the Iraqi government in exchange for oil under the United Nations' scandal-ridden oil-for-food program.”
They also paid $1M to a Serbian warlord to “convince” a Serb businessman to pay for oil shipped to him under a slightly shady, and perhaps illegal, contract that took place just before the war. The businessman thought Vitol screwed him and sued the company to keep the oil they had shipped before the war. Vitol never accepted the deal, and according to the UK Guardian / Observer, hired some guy named “Arkan” to have a little conversation with the man. The guy paid up, but the circumstances were something out The Godfather.
The truth really is stranger than fiction.The Observer has established that Vitol used Arkan to 'persuade' Dragovic to pay up. Contacts in Serbia set up a meeting at Arkan's house on 10 April 1996 attended by Finch, Dragovic and Arkan and his henchmen.
Asked how he was introduced to the former bank robber, who was known at the time to have committed atrocities in Croatia and Bosnia, Finch said: 'We do have local people in Belgrade... They said, "Go there. Meet the man. It can be sorted out." And, to be honest, it was sorted.'
Although it was not until 1997 Arkan was indicted by the UN war crimes tribunal in The Hague for crimes against humanity, his brutality was well documented when Finch met him in 1995.
His band of paramilitaries, the Tigers, were the most feared unit of the Serbian murder machine. He was known as the butcher of Vukovar after ordering the shooting in cold blood of 250 patients and staff his unit had taken from a hospital.
By April 1996, Arkan had become one of Serbia's richest men after amassing a fortune from the currency black market, arms dealing and oil smuggling.
Anyway, that's the story and I guess we will have to wait until after the conventions and when Congress gets around to going back to work before we get more details.
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