Hedge Funds And Investment Banks Manipulate Oil Prices

Slingers parsed Ben Bernocchio’s brief comments Wednesday to put in play another sloppy, kinetic gold short attack.

“We will reduce our bond purchases in the future, like we have always said, but, it may not be exactly when you think it is. Depending on data, it may be sooner, or later. We will do what is best for the economy, as determined by the markets at the time,” Bernocchio said.

With this type of obtuse drivel, anyone can be a six-figure speech writer.

One of the reasons I am so bullish on (PM) mining shares is because I believe that the output is going to dramatically outperform one of the key cost components: oil, and thereby fuel. My preferred play is the PM stocks — not to short oil. When the price of oil retreats, it will turbocharge PM stocks. I wouldn’t short oil directly because of Iran. Trouble there would spike oil and gold, so PM equities are the play. However, I feel the window has already closed on preventing Iran from possessing smaller nukes. Fiat accompli.

The extreme speculative bullish position in oil is the counter-trade of the extreme speculative bearish PM position. Essentially, the same managed money traders and speculators have piled into oil to almost the same extent they have liquidated and shorted PMs. Given the lax regulatory oversight, these are just too inviting for the large players, who in turn get themselves in hot water. The oil market is a paper/electronic market that is manipulated by a few powerful investment banks and hedge funds, distorting prices in the actual physical oil and gasoline markets. Does this sound familiar?

Commitment of Traders Crude Oil Positioning (BarCharts.com)

Hedge funds and other large speculators held a net long position of 305,392 contracts during the week ending Tuesday, according to the most recent report. Managed money Boyz held the largest long positions ever at 256,824 contracts.

Oil inventories are at 367 million, which is well above the average peak demand for this time of year. Some suspect that this extra inventory may be afloat on tankers. What happens to supplies when the slower part of the demand cycle kicks in for petroleum products?

Gasoline supplies are well above where they were last year at this time. Distillates are slightly ahead of last year’s inventory levels for same period. The production of high-quality U.S. oil is rising, but the nation’s refineries are not prepared to process it into gasoline, adding to the glut.

Chart Source: Energy Information Agency

For all that talk about added pipelines coming out of Cushing to alleviating the glut, there has actually been a very modest decrease in inventories. Last year, Cushing had 46.3 million barrels in storage, and today it has 46.1 million.

As far as the large economic contraction in the BRIC countries, oil is where the selling should be taking place — not precious metals. Unlike PMs, in which demand is surging, oil is headed the other direction. Although government sources like EIA are still calling for non-OPEC consumption growth, they are running poor models calling for a rebound in the second half of GDP growth. Instead, it will be the opposite.

Although I have identified Egypt (and South Africa) as serious situations, this won’t end up resulting in any supply disruption — or at least any disruption that offsets the decent supply levels of global crude. If anything these troubles will contribute to reduced, almost Mad Max demand for fuel.

The timing of the drop can’t be exact, as we are still in hurricane season. But as this passes, and the global economic weakness becomes obvious, look for this trade to be rapidly liquidated.

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  • http://www.winteractionables.com/ Russ Winter

    Zero Hedge on the housing data dud.

    In all the noise surrounding Bernanke’s rehash of statements made countless times before, today’s only relevant data point – June housing starts and permits – was largely ignored. And one can see why: printing at 836K, the starts number was the lowest since August 2012, the second largest sequential drop (down from 928K in May) since 2011 and the biggest miss to expectations of 957K since January 2007!

    And worse, permits which printed down from 985K to only 911K on expectations of a 1 million headline number, just posted their largest miss… in history.

    As for the reason? Simple: as we have been warning, Wall Street’s infatuation with housing as a flippable investment asset, praying that a greater fool has cheaper access to credit and will thus buy up all the distressed property, just evaporated manifesting itself in a 27% drop, or 86K units, in multifamily housing, which plunged back to September 2012 levels or 236,000.

  • http://www.winteractionables.com/ Russ Winter

    JP Morgan Is Reportedly Getting Ready To Settle For $1 Billion For Manipulating Energy Markets

    U.S. regulators and J.P. Morgan Chase are close to a monster settlement over allegations that the banking giant tampered with electricity markets in California and the Midwest, The Wall Street Journal reports.

    Sources told the Journal the deal could come in close to a staggering $1 billion, the largest payout in the history of the Federal Energy Regulatory Commission (FERC), which overseas power trading markets.

    JPM and FERC, the little regulator that could, are reportedly exchanging drafts of an agreement.

    No one going to jail once again. It should be obvious that JPMorgan is basically above the law. One has to wonder what fine/licensing fee will be levied if/when they have to pay for rigging the precious metal markets for the last generation or so.

    This businessinsider.com article was posted on their website later in the afternoon, just after the markets had closed for the day in New York…and my thanks go out to Scott Pluschau for sending it our way. There’s also a Zero Hedge story on this subject that Marshall Angeles sent me early yesterday evening. But a NY Times story from Laurent-Patrick Gally says that it’s only going to be $500 million. Either scenario is not a fine in my opinion…it’s a licensing fee!

  • http://www.winteractionables.com/ Russ Winter

    On GOOG:

    GOOGLE 2Q REV. EX-TAC $11.10, EST. $11.33B

    GOOGLE 2Q NON-GAAP EPS $9.56, EST. $10.80

    GOOGLE 2Q AVERAGE COST-PER-CLICK FELL 6% VS YEAR AGO

    GOOGLE 2Q SITES REVENUE $8.87 BILLION

    INTERNATIONAL REVENUE $7.28 BILLION

    TRAFFIC ACQUISITION COSTS $3.01 BILLION

    And MSFT:

    MICROSOFT 4Q REV. $19.90B, EST. $20.72B

    MICROSOFT 4Q EPS 59C, EST. 75C

    MICROSOFT SAYS 4Q AFFECTED BY DECLINE IN PC MARKET

    After hours: bloodbath, at least until the HFT algos start buying up NQ and ES futures. After all those never report and never disappoint.

  • crimson

    Higher end eateries catering to the top few percent probably are doing OK as are cheapie outlets serving the lower classes. But restaurants catering to a shrinking middle class are another story entirely.

  • http://www.winteractionables.com/ Russ Winter
  • http://www.winteractionables.com/ Russ Winter

    FYI: Usually large run in CKG (CHPGF), no idea why, volume not particularly heavy.

  • http://www.winteractionables.com/ Russ Winter

    Date 1-month 2-month 3-month 6-month 12-month

    10-Jul-13 -0.11167 -0.08000 -0.05833 -0.00167 0.14000

    11-Jul-13 -0.05167 -0.02833 -0.01500 0.04667 0.15833

    12-Jul-13 -0.04167 -0.02333 -0.01333 0.06167 0.17000

    15-Jul-13 -0.05500 -0.04000 -0.02333 0.06167 0.18500

    16-Jul-13 -0.05667 -0.04333 -0.02500 0.06333 0.18833

    17-Jul-13 -0.06500 -0.04667 -0.03000 0.05833 0.17667

    18-Jul-13 -0.08167 -0.06833 -0.05500 0.04167 0.16000

  • http://www.winteractionables.com/ Russ Winter

    Here is a story out of Russia stating that China is close to backing its currency with gold in a bid to be a major reserve currency. The rest of the “analyst” narrative in the story is false. I posted this comment:

    The move if accompanied by a gold repricing (higher) and an announcement that they have much more gold than the US will benefit China, strengthen its currency, allow its banks, who use gold as a 100% reserve under Basel III, to recapitalize. The US and the west will be the main losers, knocked down to size.

    http://rbth.asia/business/2013/07/17/china_reportedly_planning_to_back_the_yuan_with_gold_47997.html

  • http://www.winteractionables.com/ Russ Winter

    Very nice mix of bulk and higher grade silver for Pilot at TV Tower.

    PILOT GOLD INC.: 327 G/T SILVER OVER 14.5 METRES IN STEP-OUT DRILLING AT KCD TARGET, TV TOWER

    Pilot Gold Inc.’s drilling focused on the near-surface zone of silver-only mineralization at the KCD target at TV Tower continues to return strong results, including 327 grams per tonne (g/t) silver (Ag) over 14.5 metres in step-out drilling to the northeast.

    Recent assay results indicate that silver mineralization extends at least another 100 metres along strike west-northwest to east-southeast at KCD, now encompassing an area measuring 600 metres by 500 metres. Drill results in this release include step-out and infill drilling on the silver zone, which partially overlies the high-grade gold-silver-copper zone at KCD. Results include:

    Step-out highlights:

    327 g/t Ag over 14.5 metres in KCD-134, including 547 g/t Ag over 8.5 metres;

    71.7 g/t Ag over 53.9 metres in KCD-120, including 189 g/t Ag over 14.5 metres;

    36.1 g/t Ag over 58.1 metres in KCD 130, including 64.8 g/t Ag over 16.5 metres.

    Infill highlights:

    59.1 g/t Ag over 59.5 metres in KCD-124, including 67.6 g/t Ag over 11 metres;

    63.2 g/t Ag over 43.1 metres in KCD-117, including 113 g/t Ag over 19.3 metres;

    49.2 g/t Ag over 58.5 metres in KCD-118.

    “Pilot Gold became operator at TV Tower a little more than a year ago and, beginning with results at KCD, we have made it one of the most exciting exploration projects globally due to exceptional drill results in a mining-friendly jurisdiction,” said Matt Lennox-King, president and chief executive officer, Pilot Gold. “We have also identified many new and compelling targets across the property that we plan to explore and drill this year. We believe TV Tower to be a district in the making.”

    All true widths are 50 to 100 per cent of reported widths unless otherwise stated. All intervals of no sampling have been assigned zero grade for the purposes of compositing.

    The 2013 program at KCD is primarily focused on infill and step-out drilling of the silver zone, and testing the gold zone downdip to the north and along strike to the west-northwest. The drill results from KCD form part of an aggressive exploration program consisting of approximately 15,000 metres of diamond core and RC drilling, geologic modelling and continuing surface work. Approximately 13,400 metres in 53 holes have been completed at KCD this year, with assays pending for 16 holes. At the nearby Kayali bulk-tonnage oxide gold system approximately 1,100 metres have been completed with assays pending for four holes.

  • http://www.winteractionables.com/ Russ Winter

    -Macquarie extends loan facility with TGZ, giving stock a nice boost, and I think helping with the Oromin (OLE) takeover. Don’t forget to tender your OLE if you own, July 26 deadline.

    TERANGA GOLD CORPORATION ANNOUNCES A ONE-YEAR EXTENSION TO THE FINAL REPAYMENT DATE OF ITS EXISTING US$60 MILLION LOAN FACILITY

    Teranga Gold Corp. has extended the final repayment date of its existing $60-million (U.S.) two-year loan facility with Macquarie Bank Ltd. by one year to June 30, 2015. By way of an amendment to its existing facility agreement, Teranga will be required to maintain a restricted cash balance of up to $20-million (U.S.) with Macquarie. A total of $40-million (U.S.) of the loan facility will be repaid in five equal quarterly instalments beginning on June 30, 2014. The final $20-million (U.S.) due will be paid, together with the final instalment, on June 30, 2015.

    The amount held in restricted cash will not be subject to interest at the agreed upon rates but will be subject only to a 2-per-cent commitment fee.

    “The amended loan facility removes the lump sum payment that was previously due in June, 2014, and allows the company to better match cash flows in a lower-gold-price environment. While the amended loan facility requires the company to restrict up to $20-million of its existing cash balance, the company will realize a benefit in the form of lower interest charges,” said Richard Young, president and chief executive officer.