A rapid oil price drop on
Monday, September 17, took traders by surprise.
[1] Who exactly dumped some 13,000 contracts of
CME's West Texas Intermediate crude oil contract
and 10,000 contracts of the Intercontinental
Exchange's (ICE's) Brent/BFOE crude oil contract
into the market cratering the price by more than
US$3 per barrel?
While the identity of the
seller(s) remains obscure, the Saudis lost no time
in announcing to the market that they see oil as
over-priced and are prepared to increase
production until the price falls below
$100/barrel. Grateful market pundits reported with
alacrity to this hoary old chestnut.
Iran Makes a Move A more likely
reason for the price move than these Saudi Jedi
mind games is now emerging. On Tuesday, Catherine
Ashton, lead negotiator for the the 5+1 (the
permanent members of the
United Nations Security
Council plus Germany) involved in talks with Iran
over its nuclear policy, met Iran's Foreign
Minister Saeed Jalili for "informal" discussions,
which were said to be constructive, and in respect
of which Lady Ashton will be reporting to her
colleagues next week in New York.
What was
not widely reported was firstly, the short notice
of this meeting, and secondly, the fact - very
significant in diplomatic terms - that for the
most part it took place in the Iranian consulate,
which is legally Iranian territory.
In my
view, the policy deadlock in Iran has now been
broken, and a pragmatic decision has been made to
make nuclear concessions.
The Saudi spin
machine has been going full blast ever since in
order to sustain the greatest market manipulation
in the history of commodity trading, which I have
been documenting on these pages.
So we see
stories being fed into a credulous and
unquestioning financial press explaining that the
Saudis are upon judicious consideration prepared
to magnanimously make supplies available to a
market that is in fact awash with crude oil as
demand by refiners (as opposed to financial
demand) plummets.
More to the point, to a
hard-bitten market regulator like myself with a
suspicious mind, the sell-off on Monday has all
the hallmarks of trading on the basis of
"asymmetric" information in respect of the
upcoming meeting the next day - that is to say, it
was a form of insider dealing.
But of
course neither market traders nor investment banks
would ever dream of doing that.
The
game is afoot If it genuinely is the case
that Iran is entering into meaningful nuclear
discussions, then there is literally nothing
holding the oil market up and we can expect a
rapid decline in the oil price, and with it the
fortunes of Iran, Russia, and Venezuela among
others.
This setback to US antagonists
would be a timely gift for President Barack Obama,
who would also be only too pleased to see the US
gasoline price - which has been inflated by a
shortage of refinery capacity, and an alleged
market coup in New York by Glencore - decline
rapidly as the price of its crude oil feedstock
dives.
So the next couple of weeks should
be interesting times in the oil market, which is
already down 5% this week: as Sherlock Holmes put
it to his trusty companion ... "The game's afoot!"
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