|
Stewart, MN | A couple of angles to ponder, 1st relating to oil. Seems like WTI and Brent have disconnected in more recent history with a bigger spread and less volatility for Brent so it appears that people are willing to pay for a superior product or maybe just a product that is friendly to how their refineries are tuned for crackin, proximity to supply, etc.?
Must keep the loosely enforced embargo on Iran on the radar. Countries are still getting oil from them (and I don't have numbers for this but) at what I suspect is a discount and not up to their production capacity. If their capacity were included on the open market that might bend the price curve?
2nd is to compare the process of silver manipulation or price range fixing as I like to think about it to the benefits it provides the banks. Substitute silver in preceding sentence with any commodity for that matter but let's see if it makes sense for silver and then extend it to other commodities. Yeah, I know, oil and grains are kind of a bugger to take delivery on when you're a bank but let's not let that whole "there are more contracts and positions in place than there will ever be the actual physical commodity" thingie weigh us down.
So I am a bank that owns a pile of a physical asset that has value. There is also an exchange/means of buying/selling futures contracts on said asset. So what would be the best way to get an ongoing income stream out of owning both the physical and paper versions of said asset? Well I guess I'd hoard the physical but manipulate the value of the asset by controlling the paper. Own a bunch of contracts, price gets a little high, dump a bunch of paper and drive the price down. No biggie, buy back the paper at a lower price. Price getting to low, thus eroding the basis of you collateral, well that's pretty to run up with a few calls. The point here is to keep the value of your physical asset in a range that doesn't make you rich (or entice to many paper holders to demand delivery) but also doesn't erode your asset's intrinsic value as collateral in other leveraging operations.
Selling the asset produces a one time benefit and removes it from being used as collateral on further leverage, not to mention erodes you already over estimated physical position.
Leverage from above can be deployed in another asset class or levered up even more through shadow banking interbank loans.
Selling the asset also (in theory at least) prevents you from offering shares in an ETF, think SLV, as you have to have at least some physical to run that scam.
Specs don't mind trading in a range as thay can front run everything and make money off the volitility in any event. Straddles, puts, calls, and of course the paper cannon.
So my point here, if it makes any sense at all, is there is benefit to banks or spec funds, (oh yeah, I forgot, they are the same now) to participate in a rolling paper market that is underpinned by a physical commodity. Objective being to not kill the market by allowing the price to go to high or too low. Too low and your leveraging scheme is compromised, too high and people might actually want to take delivery and find out that that last pallet of Twinkies you told everybody you had doesn't actually exist.
OOps, Off on a tangent here. Jeez I hope this makes some sense but a range bound trade with some volatility is just what the specs. love but if there is movement generated by supply/demand they enjoy making coin on that just as much.
The bankers are running out of "good" collateral to lever up in the shadow banking sector as Uncle Ben is vacuuming up assets typ. used as collateral in the shadow system.
This address the OP's question pretty directly, a good read.
http://www.zerohedge.com/news/guest-post-repricing-oil
Speaks more to the manipulation drum I've been beating lately
http://www.zerohedge.com/article/no-its-not-nat-gas-fractal-algo-na... | |
|
I continue to drink Sat's beary flavored kool-aid Part 2
