The price of oil - a conspiracy of bankers

2024 Author: Seth Attwood | [email protected]. Last modified: 2023-12-16 15:55

The beginning of the new year was accompanied by a record drop in indices and prices in the financial and commodity markets. New records were also recorded in the oil market. During the period from July 2014 to the end of 2015, the price of this energy resource decreased by 70%.

It would seem that there is nowhere to go further, and nevertheless, last week oil prices fell by more than 10%, having survived the worst beginning of the year for the entire period of statistics.

Traders are increasingly inclined to believe that prices may fall below $ 30 per barrel.

Bloomberg statistics, based on the synthetic World Oil & Gas Index, show that in the first week of the new year, 60 of the world's largest oil companies suffered losses of about $ 100 billion due to falling prices. Royal Dutch Shell Plc, Europe's largest oil company, lost 5.7% on the Bloomberg Index, while BG Group lost 6.4%. Sinopec, Asia's largest refinery, lost 7.6% on the Bloomberg Index, while PetroChina Co., the world's second largest oil company, lost 6.8%.

A lively discussion of the reasons for the unprecedented fall in prices for black gold has been going on for a long time. There are fewer and fewer of those who, in the old fashioned way, believe that such a drop is the result of a "natural" change in market conditions. They say that the demand for oil began to lag more and more behind its supply, and the lag, in turn, is caused by the attenuation of economic activity in most countries of the world. Indeed, attenuation is observed, but it changes the ratio of supply and demand by values of several percentage points, while the fall in prices has already been measured several times.

The actions of Saudi Arabia are often cited as the reason for the collapse of prices on the world market. Indeed, it unilaterally (without agreements within the OPEC) increased oil production, embarking on the path of oil dumping in an attempt to win the position of the master of the world black gold market. This may explain the decline in world prices by a few dollars per barrel, but the total value of the fall (when counted from the maximum reached in 2008) was about $ 100 per barrel. And if we count from the average price in 2014, equal to almost 100 dollars (mark "Brent"), then the drop in relation to the beginning of 2016 is almost 70 dollars per barrel. Only all major oil-producing countries (OPEC plus Russia, plus two or three other states) are capable of such market swings.

The OPEC factor, an organization called the oil cartel, is today considered by almost none of the serious experts as significant. Naturally, the suspicion arises that the oil market is being manipulated. One of the traditional methods of manipulating any market is to create inventory. Black gold reserves under the guise of strategic reserves are formed by many countries of the world, primarily the United States. Inventory sales can drive prices down. There have been sales in US reserves, but the effect of such sales is very short, and the price deviations were no more than a few dollars per barrel.

In the last days of 2015, a series of publications appeared in the media explaining the sharp fluctuations in the oil market by the actions of the banking cartel. One of the first was an article by the American financial expert Michael MacDonald, which states that OPEC does not control the black gold market, but controls this market by a banking cartel that uses energy loans to companies in the oil and other energy sectors as a tool. According to MacDonald, the total amount of outstanding loans in the US energy sector (oil and gas industry) is 4 trillion. Doll. At the same time, American banks of this volume issued approximately 45% of loans, another 30% - foreign banks, 25% - non-banking organizations, such as hedge funds. As of Q3 2015, Citigroup had $ 22 billion in energy loans, JP Morgan Chase - $ 44 billion, Bank of America - $ 22 billion, Wells Fargo - $ 17 billion.

One can agree with MacDonald's first conclusion: OPEC has really not controlled the oil market for a long time. One can also agree that the market began to be controlled by banks organized into a cartel. The third conclusion that energy credits are a management tool is questionable.

MacDonald himself cites data that cast doubt on this conclusion. The author says that energy loans account for only 3% of the total US lending market. The shares of energy loans in the loan portfolios of individual American banks are as follows (%): Citigroup - 6, 1; JP Morgan Chase - 5, 6; Bank of America - 2.5; Wells Fargo - 1, 9. Not enough to create major changes in the oil and other energy markets. It is clear that energy is not the top priority of Wall Street banks' credit policy. Hypothetically, bank loans can be a vehicle for long-term structural policy. This is exactly what some experts are hinting at when they say that the fall in oil prices is "for a long time and in earnest." Such conclusions, however, must be supported by statistics on investments in the development of alternative forms of energy displacing conventional oil, but there is no such evidence. Banks, at least, have not significantly increased lending to projects of the same green energy in recent years.

This suggests that the fall in the price of black gold is the result of price manipulation. Bank loans cannot serve as a tool for such manipulations. Loans, of course, have an impact on prices, but the effect of the loan occurs with a time lag of several years. And manipulation creates a price effect immediately, or maximum in a few weeks. McDonald argues that banks have limited funding to the oil industry in the past year and will likely continue to do so in 2016. But then one can expect that, on the contrary, there will be an increase in the price of black gold, since credit restrictions will lead to a reduction in the supply of oil.

Oil market manipulators are the largest banks. They do this through oil futures contracts and other oil-linked derivatives. Paradoxically, the prices of the current day (spot transactions) are determined by the prices of future supplies (for example, in a year).

And future (futures) prices are formed as a result of the so-called expectations. "Expectations", in turn, are created by rating agencies, the expert community and the media. All of them are under the control of the largest banks. Banks simply order the "right" expectations.

Since the late 70s. In the 20th century, the “paper oil” market began to develop dynamically in the world. the market for futures contracts that do not end with the delivery of physical oil. This is a gamble of speculators, from which everyone who is engaged in the extraction, processing and use of oil and oil products in the real sector of the economy suffers greatly. Today, the turnover of the “paper oil” market is dozens of times higher than the turnover of the physical oil market. The volume of trading in oil futures contracts on the two largest exchanges - New York's NYMEX and London's ICE - has already exceeded the annual consumption of oil in the world by more than 10 times.

All financial derivatives markets are controlled by banks. First of all, Wall Street banks, as well as some of the largest banks in the City of London and continental Europe. The paper oil market is no exception. According to the calculations of IMEMO RAN, 95% of the world market for oil derivatives is controlled by US banks.

The largest holders of positions in oil derivatives are Goldman Sachs, J. P. Morgan Chase and other banking giants using oil futures, first, to profit from fluctuations in oil prices; secondly, in order to ensure their activities as financial intermediaries. At the same time, banks' clients are both players in the physical oil market - oil producing companies, oil refineries, airlines, etc., and financial players, including hedge funds. In order to increase the commercial effect of their monopoly position in the “paper oil” market, many giant banks did not disdain even to engage in physical oil trading (it is obvious that, when planning prices for black gold, such banks get an advantage over the players of the so-called free market) … In 2003, the US Federal Reserve authorized banks to act as commodity traders. J. P. Morgan, Morgan Stanley, Barclays, Goldman Sachs and Citigroup and several other major banks.

Financial crisis 2007-2009 was provoked largely due to the fact that financial derivatives markets, where American banking giants were frolicking, were outside the control of financial regulators. The US Federal Reserve, the US Securities Commission, the US Department of Justice, and European financial regulators have tried to establish elementary order in the derivatives markets. In 2010, the USA adopted the Dodd-Frank law, which outlined the directions for tightening the regulation of the financial market, but this act is of a framework nature; for its practical application, it is necessary to adopt a large number of specific laws and bylaws.

For several years, the United States has been investigating the activities of Wall Street banks and major European banks on the eve and during the 2007-2009 crisis. In particular, the links were revealed between banking operations in the oil futures markets and their operations with physical oil. In 2012, investigations began on the activities of Goldman Sachs, Morgan Stanley and J. P. Morgan for manipulating the prices of raw materials (including oil), and in 2014 the said banks were faced with well-founded charges.

So far, most of the largest banks have been and remain in the financial derivatives markets. Including in the oil futures market. Therefore, we must be prepared for the fact that the oil “market” will continue to perform various circus tricks.

In conclusion, it should be said that the banks that manipulate the prices of black gold are indeed organized into a cartel. However, this is not a specialized cartel whose activities are limited to one product market. It is a global cartel officially known as the US Federal Reserve System. With a printing press that creates the world's money (dollars), the Fed's shareholder banks effectively control all financial markets and most of the commodity markets.