Crude Jokes Indeed

Crude Oil had a volatile ride this week. We had a day when Crude dropped 4+, then the next day Crude reflated 3+. Why? News Driven. Politics driven. Research driven.

The day Crude dropped 4+, was the day that Goldman, JP, and other CTFC exempt Wall Street institutions made their case to the CTFC that they should be listed under the bona fide hedging category, making them still exempt from trading limitations. They made their case to the head of the CFTC Gary Gensler. Yes the same Gary Gensler that used to be employed at Goldman Sachs for 20 years. Wall Street is continually making the case that exemptions to trading limits should stand because they are involved in many swap transactions with commodity end markets. This is complete bullshit, as most of these swap transactions are done on the OTC market, where by and large speculation not bona fide hedging takes place.

The next day, we had a the same Goldman analyst who predicted $200 Crude 2 years ago come out and say that Crude for fundamental reasons is going higher. So obviously Crude retraced some $3+ on the upside.

tradersutra.blogspot.com/2009/07/trading-limits-under-review-by-cftc.html

/tradersutra.blogspot.com/2009/07/crude-oil-speculation.html

It was the oldest trick in the Wall Street book. Put out a glowing positive report on an industry, so the bleeding stops, so that your constituency can get out while prices reflate.

You may know of this by its neo-classical definition:

The Greater FOOL Theory.

So what are the fundamentals of the crude market? Are they so bullish that we are going to see $145 again?

The only thing that is bullish or positive in Crude Land are the technicals.

The fundamentals are lousy. The market is not trading on fundamentals. It didn't trade on fundamentals when the market was $145, and it didn't trade on fundamentals when it traded in the low $30's.

Crude oil prices have and are totally disconnected from the underlying fundamentals of supply and demand in the market. Its been like this for the last three years.

The outlook for Crude Oil demand continues to decline this year even in the backdrop of Crude rallying 55% from December 2008. The outlook for crude oil demand since December 2008 has gotten a lot worse even with global quantitative easing.

So there is no doubt that Crude Oil prices are inflated, the question remains how much? Is it $10-$15-$20 bucks? Who knows? The only thing that is certain is that current Crude is not representing market fundamentals.

Demand continues to weaken, demand outlook continues to slide, there is more then enough supply, in fact there is Crude Inventory coming out of our wazoos, from the weekly inventory figures. Nobody needs anymore oil, most oil refineries around the world are cutting back, because the demand is simply not there.

This basically is a view that the global economic slump is still by and large in play, and that economic growth is a pipe dream going forward. Some may say that current Crude Oil speculators are discounting this. Most people employed by the Wall Street machine agree with this assumption. But remember, last year around this time we had $145 Crude Oil, it was the same speculators (GS,JP,MS) pushing Crude higher. It was the same predicting $200-$250 Crude, but within 6 months, Crude had crashed to $33. So there has been a huge range to which Crude has traded. Consumers don't want to see $145, OPEC doesn't want to see $33, so my guess is that Crude barring any political situations (IRAN) should stabilize somewhere around low 60's.

But the main discussion here is that the CTFC is not doing its job of curbing excessive speculation in all commodity markets especially Crude. Gensler and his gang talk a lot about better regulation, but its all talk. They are not doing enough to cut down on excessive trade limits. My guess is there will be some veiled regulation handed down that will allow GS,MS,JP,and the like to continue to run up prices.

There will only be changes when there is sufficient public outcry. So far the public is so wrapped up in their own financial denials, that they fail to realize they are being taken to the cleaners by Goldman, JP, and the Wall Street Machine.

There is no checks and balances towards government doing their job. Oil speculation although not as rampant as it was the previous 2 years, is still out of control.

Let me be straight, any market needs an element of speculation, but when all there is is speculation, that's a problem. Right now speculators control the Crude Oil market, this is unacceptable when Americans have to fuel their cars every day. Why should I have to be at Goldman Sachs mercy?

There needs to be trading limits.

There needs to a system where the Crude Oil market goes back into the hands of the end users and the producers/marketers of oil.

Most of the trading (80%) in Crude oil and its by products are done by Goldman Sachs, JP, Citi, and Morgan Stanley. This figure needs to be dwindled down to 25%-30%.

Why do we need specialized commodity ETF/ETN's like USO and OIL? They are a scam that rips off investors and inflates the market for Crude.

tradersutra.blogspot.com/2009/07/crude-etf-trading-is-joke.html

Finally, we cant allow public pension funds and the like to have 20%-30% of assets directly invested in commodity markets.

I understand that commodities have become an asset class, but there has to be some control.

We need better enforceable regulation, not more hollow regulation with lobby loopholes.