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A Few Speculators Dominate Vast Market for Oil Trading
WP ^ | 08/21/08 | David Cho

Posted on 08/21/2008 9:40:07 PM PDT by TigerLikesRooster

A Few Speculators Dominate Vast Market for Oil Trading

By David Cho

Washington Post Staff Writer

Thursday, August 21, 2008; A01

Regulators had long classified a private Swiss energy conglomerate called Vitol as a trader that primarily helped industrial firms that needed oil to run their businesses.

But when the Commodity Futures Trading Commission examined Vitol's books last month, it found that the firm was in fact more of a speculator, holding oil contracts as a profit-making investment rather than a means of lining up the actual delivery of fuel. Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.

The discovery revealed how an individual financial player had gained enormous sway over the oil market without the knowledge of regulators. Other CFTC data showed that a significant amount of trading activity was concentrated in the hands of just a few speculators.

(Excerpt) Read more at washingtonpost.com ...


TOPICS: Business/Economy; News/Current Events
KEYWORDS: cftc; energy; energyprices; nymex; oilfuture; speculation; vitol

1 posted on 08/21/2008 9:40:08 PM PDT by TigerLikesRooster
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To: TigerLikesRooster; Uncle Ike; RSmithOpt; jiggyboy; 2banana; Travis McGee; OwenKellogg; 31R1O; ...

Ping!


2 posted on 08/21/2008 9:40:40 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster

NUTS!


3 posted on 08/21/2008 9:42:41 PM PDT by valkyry1
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To: TigerLikesRooster

Oh, please. The answer is not the eeeeeeevil speculators; the answer is DRILL HERE, DRILL NOW.


4 posted on 08/21/2008 9:44:02 PM PDT by hsalaw
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To: hsalaw

are you kidding? Did you even read the article?


5 posted on 08/21/2008 9:52:40 PM PDT by steel_resolve (We are living in the post-rational world where being a moron is an asset)
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To: hsalaw

You’re right. Speculators take risks that go both ways.

Once they’re in, speculators have no control over anything until the moment they close their positions.


6 posted on 08/21/2008 9:56:40 PM PDT by OldNavyVet
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To: OldNavyVet

An Oklahoma-based oil refinery went bankrupt recently after somehow managing to lose $5 Billion in speculation. The eeevil speculators don’t always win. Remember when the Hunt brothers tried to corner the silver market?


7 posted on 08/21/2008 10:00:46 PM PDT by ozzymandus
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To: TigerLikesRooster

I love this “blame the speculators” BS. The whole point of a financial market is that everyone sees the exact same bid & offer.

Any price a “speculator” can buy you can too, and the same for any price he can sell. In fact, you have the advantage because he needs to move more contracts so you can find liquidity when he can’t. There is no evil black magic he can use to change these facts...he makes money at the same risk, he’s just better at it.

I can’t stand hearing people whine about “manipulation”, because if you really know better where the price should be than the thousands upon thousands of people whose job is based on accurate pricing then there’s nothing stopping you from putting your money where your mouth is and making a killing.

In fact if you’re confident enough in your opinion, leverage in the futures markets will let you make not only enough to more than cancel out whatever you pay (or have paid) to fill your tank, but enough to retire a hundred times over.


8 posted on 08/21/2008 10:04:18 PM PDT by BobbyT
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To: steel_resolve
are you kidding?

I never kid.

9 posted on 08/21/2008 10:05:57 PM PDT by hsalaw
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To: BobbyT
Of course, speculators do not always win, as evidenced by big name investment banks going under or begging for new capital injection these days.

It is the bubble it creates.

10 posted on 08/21/2008 10:10:29 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: hsalaw
There is nothing in the article which indicates the opposition to drilling. I did not post this article to oppose the drilling either. On the contrary, I am for it.
11 posted on 08/21/2008 10:12:08 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster

No offense intended; my comment was directed to the article, not to you personally.


12 posted on 08/21/2008 10:17:45 PM PDT by hsalaw
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To: BobbyT
If someone sells at the market price tomorrow, 5 times more shares of a major bank than exist, what will the stock close at?

Will anybody panic?

Ordinary speculation is fine. Naked shorting without first borrowing the shares isn't.

Everyone said it was important, not enough of it happening, won't make a difference. Then the SEC issued a letter, and stocks that were down 80% in six months moved 30% in a day.

Those engaged in this sort of thing are not few, are not capitalists trying to make an honest living, and are not friends of the United States.

Please wake up. We are at war.

13 posted on 08/21/2008 11:42:00 PM PDT by JasonC
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To: TigerLikesRooster

Domestic drilling would certainly give speculators less to speculate about and we would see more stability in the oil market and drilling would create downward pressure on prices. But, it also seems to take relatively little money down to corner this market in comparison to other markets, especially since it is so important.


14 posted on 08/22/2008 12:04:38 AM PDT by TheThinker (Capitalism is the natural result of a democratic government.)
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To: TigerLikesRooster

If my premise is true then Bush could further reform the oil futures market. He’s already ordered the SEC to forbid bidding on the same barrels of oil from multiple speculators. He could order that speculation require a larger percentage of the bid price up front. This would help offset OPEC which may cut production at its next meeting. It would also undercut dems complaining about speculators as long as the new rules don’t make the price plunge dramatically. Then driling would still be a hot topic but keep the economy humming.


15 posted on 08/22/2008 12:21:55 AM PDT by TheThinker (Capitalism is the natural result of a democratic government.)
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To: TheThinker
I am also leaning toward taking care of both fronts: drilling more and keeping down the bubble.
16 posted on 08/22/2008 12:28:29 AM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster

OSSETIA VIRTUAL


17 posted on 08/22/2008 1:20:14 AM PDT by quickquiver (No, means N O.)
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To: JasonC

First off, you can’t sell huge volume at one price. You can’t even sell a moderate volume at one price. That price only exists for a small quantity...you just take it for granted that you can sell Google at the quoted price because you’re moving such insignificant size.

The second someone tries to move real size, they’ll have to start paying down into lower bids. On top of that, if they’re anything significant, bids will cancel. That means they’ll be selling at bad prices.

There’s an entire category of counter-trend traders who make their living solely on taking the other side of a bad buy/sale. My job consists of doing that in US Treasury & Eurodollar spreads every night. Every night we see guys trying to bully the market. They push a trade down, we start buying, and if they’re big enough they might make us take some heat.

But they eventually have to buy their stuff back...and their fighting all the traders who see such a cheap deal and hop on it. The more they sell to try to force it down, the more they have to buy back. Occasionally we get smoked if the guy can push it far enough, but meanwhile we take money out every single day based on people pushing trades out of line. When you distort the market, the market takes notice and corrects.

The only way the guy who’s selling (or buying...but you don’t hear people complain about “naked longs”) can make money is if it’s a LEGITIMATE move. IE, the market is wrong and he’s right...so if you’re the genius who identifies that Enron is worth pennies on the dollar (or that Microsoft is worth a thousand times its IPO), then you SHOULD make a killing because the market price is wrong and SHOULD be that much lower (or higher).

TANSTAAFL applies, as always.


18 posted on 08/22/2008 1:26:51 AM PDT by BobbyT
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To: BobbyT

*their —> they’re (3:30AM...this makes me cringe. Really wish we could edit posts)


19 posted on 08/22/2008 1:42:43 AM PDT by BobbyT
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To: hsalaw
In this case, evil is probably the correct adjective, as the folowing internal Enron/Vitol SA e-mails help flesh out. (Vitol SA, based out of Geneva, Switzerland is the company that held, just by itself, 11 percent of all oil call futures contracts for nine months, thus giving it tremendous, unaccountable market-making leverage capacities in regards to oil prices) They involve the efforts by Vitol SA Managing Director David Fransen and key Enron executive Stephanie Panus to set up joint complex derivative accounts to hide losses from real-time fiscal accounting laws. (ISDA is International Swaps and Derivatives Association, an advocacy group for this murky business) http://www.cs.cmu.edu/afs/cs/user/lsl/radar/Year4/Enron/maildir/panus-s/inbox/18. Message-ID: <33481604.1075863216766.JavaMail.evans@thyme> Date: Tue, 30 Oct 2001 00:39:11 -0800 (PST) From: dbf@vitol.com To: stephanie.panus@enron.com Subject: RE: Vitol/Enron ISDA Cc: giw@vitol.com Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit Bcc: giw@vitol.com X-From: David Fransen @ENRON X-To: Panus, Stephanie X-cc: Gilbert Widmer X-bcc: X-Folder: \SPANUS (Non-Privileged)\Panus, Stephanie\Inbox X-Origin: Panus-S X-FileName: SPANUS (Non-Privileged).pst Thanks, Stephanie ... I look forward to your reply in due course .. I guess that your credit people are rather tied up at the moment. Regards, David David Fransen Vitol SA Geneva Tel : ********************************************************************** This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. If you have received this email in error please notify the sender. ********************************************************************** -----Original Message----- From: Stephanie.Panus@enron.com [mailto:Stephanie.Panus@enron.com] Sent: 29 October 2001 15:17 To: DBF@Vitol.com Subject: RE: Vitol/Enron ISDA Our Credit Dept is currently reviewing your comments. I will check with them and let you know something. Stephanie Panus Senior Legal Specialist Enron Wholesale Services 1400 Smith Street, EB3803C Houston, Texas 77002 ph: 713.345.3249 fax: 713.646.3490 email: stephanie.panus@enron.com -----Original Message----- From: David Fransen @ENRON Sent: Saturday, October 27, 2001 3:31 AM To: Panus, Stephanie Cc: Gilbert Widmer; Keith Swaby; Martha Garrison Subject: Vitol/Enron ISDA Hi, Stephanie, I wanted to check where we are on the ISDA ... we sent you a proposal at the end of Sept, and you and I have exchanged a couple of emails since then, but overall I believe that the ball is still ' in your court'. Is this correct? Regards, David David Fransen Vitol SA Geneva Tel : ********************************************************************** This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. If you have received this email in error please notify the sender. ********************************************************************** ********************************************************************** This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to receive for the recipient), please contact the sender or reply to Enron Corp. at enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the intended recipient or any other party, and may not be relied on by anyone as the basis of a contract by estoppel or otherwise. Thank you. ********************************************************************** http://www.enronexplorer.com/show_email/20209 RE: Vitol/Enron ISDAEmail detailsFrom: dbf@vitol.com To: Stephanie Panus , kws@vitol.com , giw@vitol.com Sent: 04/10/2001 at 21:37 Email metadataThemes: Revised Draft --------------------------------------------------------------------------------The messageHi, StephanieVCM has an office in bermuda and in Houston ... you will tend to deal with the Houston office most of the time on trading, invoicing and collateral matters.I trust that this answers your questionRegards, DavidDavid Fransen Vitol SA Geneva Tel : ********************************************************************** This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. If you have received this email in error please notify the sender. ********************************************************************** -----Original Message----- From: David Fransen @ENRON[mailto:IMCEANOTES-David+20Fransen+20+3CDBF+40Vitol+2Ecom+3E+40ENRON@ENRON.c om]Sent: Friday, September 28, 2001 1:25 AM To: Panus, Stephanie Cc: Gilbert Widmer Subject: RE: Vitol/Enron ISDAGreat ... thanks for the emailWe look forward to your replyRegards, David -----Original Message----- From: Stephanie.Panus@enron.com [mailto:Stephanie.Panus@enron.com] Sent: 27 September 2001 21:52 To: DBF@Vitol.com Subject: RE: Vitol/Enron ISDADavid, Sorry to not respond earlier. We did receive the attachments in readable format and Francisco is currently reviewing them.-----Original Message----- From: David Fransen @ENRON[mailto:IMCEANOTES-David+20Fransen+20+3CDBF+40Vitol+2Ecom+3E+40ENRON@ENRON.c om] Sent: Friday, September 21, 2001 3:51 AM To: Panus, Stephanie Cc: Martha Garrison; Gilbert Widmer; Keith Swaby; Vanek, Darren Subject: Vitol/Enron ISDAHello, Stephanie,I must first apologise for the delay in replying to your email/attachments fo 24 July.Our reply is for the ISDA with Vitol Capital Management, but I hope that once we have agreed the wording for this , we will be able to quickly implement ISDA's for the other Vitol and Enron entities involved ... I expect that we will just have to change the tax declarations, the address details and a few other similar minor items.Attached is a covering letter and revised draft schedule.<> < by Vitol Sept 11, 2001.doc>>Can you please confirm that you receive this email and the attachments in a 'readable' format?Thanks and regards, DavidDavid Fransen Vitol SA Geneva Tel : ********************************************************************** This email and any files transmitted with it are confidential and intended solely for the use of the individual or entity to whom they are addressed. If you have received this email in error please notify the sender.**********************************************************************- X M Sept. 21, 2001 Reply to ENA.doc << File: X M Sept. 21, 2001 Reply to ENA.doc >> - X Draf Schedule Revised by Vitol Sept 11, 2001.doc << File: X Draf Schedule Revised by Vitol Sept 11, 2001.doc >>********************************************************************** This e-mail is the property of Enron Corp. and/or its relevant affiliate and may contain confidential and privileged material for the sole use of the intended recipient (s). Any review, use, distribution or disclosure by others is strictly prohibited. If you are not the intended recipient (or authorized to receive for the recipient), please contact the sender or reply to Enron Corp. at enron.messaging.administration@enron.com and delete all copies of the message. This e-mail (and any attachments hereto) are not intended to be an offer (or an acceptance) and do not create or evidence a binding and enforceable contract between Enron Corp. (or any of its affiliates) and the intended recipient or any other party, and may not be relied on by anyone as the basis of a contract by estoppel or otherwise. Thank you. ********************************************************************** Trampoline Enron Explorer from Trampoline Systems. Powered by SONAR. Copyright Trampoline Systems © 2006.
20 posted on 08/22/2008 2:31:28 AM PDT by oioiman (all we want is the law to be enforced.....)
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To: BobbyT

Would you care if Vitol was a vehicle for massive Russian speculation to jam the oil price higher? Somehow in this oil bubble there are Russians and Iranians forcing oil/energy higher and higher via the commodity markets.

Now why would they be doing this?
Would a country that brutally invades Georgia over a competitors oil pipelines be capable of such dastardly deeds?


21 posted on 08/22/2008 3:11:29 AM PDT by dennisw (That Muhammad was a charlatan. Islam is a hoax, an imperialistic ideology, disguised as religion.)
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To: buckrodgers

ping


22 posted on 08/22/2008 3:12:35 AM PDT by Straight Vermonter (Posting from deep behind the Maple Curtain)
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To: BobbyT
First off, you can’t sell huge volume at one price. You can’t even sell a moderate volume at one price. That price only exists for a small quantity...you just take it for granted that you can sell Google at the quoted price because you’re moving such insignificant size.

The second someone tries to move real size, they’ll have to start paying down into lower bids. On top of that, if they’re anything significant, bids will cancel. That means they’ll be selling at bad prices.

Wow
It sure sucks to be a large speculator
Why don't you tell the to Vitol
And tell it to Goldman Sacks who agitated until the rule was altered in 1992 to allow them to take outsized positions too, not just firms involved directly in oil/commodities who needed to do some honest hedging

23 posted on 08/22/2008 3:15:18 AM PDT by dennisw (That Muhammad was a charlatan. Islam is a hoax, an imperialistic ideology, disguised as religion.)
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To: JasonC
Those engaged in this sort of thing are not few, are not capitalists trying to make an honest living, and are not friends of the United States.

Please wake up. We are at war.

Russians? Middle East Investment funds?
Using our own markets to harm the United States

24 posted on 08/22/2008 3:17:18 AM PDT by dennisw (That Muhammad was a charlatan. Islam is a hoax, an imperialistic ideology, disguised as religion.)
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To: hsalaw

Exactly. If we embark on a serious energy plan like the American energy Act

http://www.govtrack.us/congress/bill.xpd?bill=h110-6566

the price of oil will tank hard and fast.

Remember a month ago when Bush lifted the executive order on offshore drilling restrictions? The market responded and dropped $30/ barrell in two weeks or so.

The market isn’t the problem, government policy is the problem.


25 posted on 08/22/2008 3:22:45 AM PDT by ovrtaxt (This election is like running in the Special Olympics. Even if McCain wins, we're still retarded.)
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To: TigerLikesRooster

There was an article from Reuters covering a governmental paper released by the CFTC, several weeks ago. Very peculiar, circumspect language, referring to an unnamed “very special trader.” This “very special trader” was reclassified as speculative, and controlled 460 million barrels of oil. Nearly US$60 billion dollars at the time. That’s well above 11%.


26 posted on 08/22/2008 3:27:39 AM PDT by RegulatorCountry
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To: RegulatorCountry

Found a link to the Reuters article I mentioned:

http://www.reuters.com/article/governmentFilingsNews/idUSN0535661120080805


27 posted on 08/22/2008 3:42:31 AM PDT by RegulatorCountry
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To: BobbyT
You still just aren't getting it. The point isn't to get filled at good prices and get out lower. The point is to drive the price to zero and destroy US financial institutions and the underpinings of the economy. Which part of "we are at war" is giving you trouble? You think our enemies are above intervening in our financial crisis? You think they give a damn whether they turn a profit on every trade? If they can cause a trillion in pain in the US for a few measly millions, it is cheaper than ICBMs.

Please wake up. Ordinary speculation, no problem. It is not, repeat not, the only thing actually occuring at this time.

28 posted on 08/22/2008 8:05:22 AM PDT by JasonC
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To: TigerLikesRooster
Even more surprising to the commodities markets was the massive size of Vitol's portfolio -- at one point in July, the firm held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange.

My concern is with the companies buying oil dependent companies on the dips - and selling on the highs. For example, say I know oil's going up in price - and that airline stocks will be going down... or the reverse. I can "time" the market. Just bleed it dry. When there's enough holdings in a small number of hands, it's a cornered market.

29 posted on 08/22/2008 8:25:21 AM PDT by GOPJ (If Obama can't stand up to Hillary, he can't stand up to North Korea. Iran. Or anyone.)
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To: TigerLikesRooster; gusopol3; NormsRevenge; thackney; BOBTHENAILER; Grampa Dave; SierraWasp; blam; ..

fyi


30 posted on 08/22/2008 9:02:35 AM PDT by Ernest_at_the_Beach (No Burkas for my Grandaughters!)
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From the WaPost article:

**********************EXCERPT************************

The CFTC, which learned about the nature of Vitol's activities only after making an unusual request for data from the firm, now reports that financial firms speculating for their clients or for themselves account for about 81 percent of the oil contracts on NYMEX, a far bigger share than had previously been stated by the agency. That figure may rise in coming weeks as the CFTC checks the status of other big traders.

31 posted on 08/22/2008 9:04:57 AM PDT by Ernest_at_the_Beach (No Burkas for my Grandaughters!)
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To: neverdem; patton; TigerLikesRooster
So who owns parts and pieces, or (more likely) controls people who control parts of pieces of this (conveniently foreign-held) Swiss company Vitrol?
32 posted on 08/22/2008 9:35:58 AM PDT by Robert A. Cook, PE (I can only donate monthly, but Hillary's ABBCNNBCBS continue to lie every day!)
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To: dennisw; neverdem; patton; doug from upland; MHGinTN; xcamel; steelyourfaith; theDentist
And tell it to Goldman Sacks who agitated until the rule was altered in 1992 to allow them to take outsized positions too, not just firms involved directly in oil/commodities who needed to do some honest hedging

Hmmmn.

SO, how many of these commodities investment-rules changes occurred under Bush-the-senior, and how many (later - between 1993 and 2000) under Clinton's (thereby Enron’s and Soro’s and Chinese and Indonesian) influence? Enron, after all, STARTED the global carbon cap-and-trade scenario that REQUIRED global warming as a forcing influence/cover.

Was it only the first commodity that mattered? Or the combination of many changes?

33 posted on 08/22/2008 9:41:12 AM PDT by Robert A. Cook, PE (I can only donate monthly, but Hillary's ABBCNNBCBS continue to lie every day!)
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To: Robert A. Cook, PE
DING DING DING DING DING DING DING DING DING DING DING!

NO more calls, please.

WE have a winner!

34 posted on 08/22/2008 4:16:51 PM PDT by grey_whiskers (The opinions are solely those of the author and are subject to change without notice.)
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To: Robert A. Cook, PE
Hi Mr. Cook
I know you are a very precise person so please excuse my sloppiness on the year  --- It was 1991 so during Bush Sr it seems that commodity trading rules were relaxed to allow Goldman Sachs and other financial firms to take large positions. Large positions were previously reserved for commodity producers and buyers. People in the business, not speculators
Russia plans an invasion of Georgia for four months then seizes on a pretext to invade and has been lying ever since
Why would the Russians not be operating through Vitol and/or others to drive oil futures prices higher. It's a no brainer after seeing their rapacious behavior in Georgia

Speculation accounts for 81% of oil trading volume

Guess who broke open the opportunity for oil speculators to trade oil in a loosely regulated fashion? Goldman. The Post reports that In 1991, its J. Aron unit argued that "it should be granted the same exemption given to commercial traders because its business of buying commodities on behalf of investors was similar to the middlemen who broker commodity transactions for commercial firms."

The CFTC granted this request. More exemptions soon followed, including one to Enron that allowed it to trade huge positions for speculative purposes. The Post also reports that the biggest firm speculating on oil -- which bears the most responsibility for your high gasoline prices -- is a Swiss trader called Vitol, which at one point in July, "held 11 percent of all the oil contracts on the regulated New York Mercantile Exchange." While the CFTC may change the rules to stop such speculation, that's not a long-term concern for Goldman and Vital.

http://www.bloggingstocks.com/2008/08/21/speculation-accounts-for-81-of-oil-trading-volume/

 


35 posted on 08/22/2008 4:20:56 PM PDT by dennisw (That Muhammad was a charlatan. Islam is a hoax, an imperialistic ideology, disguised as religion.)
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To: oioiman

Formatting is our FRiend.


36 posted on 08/22/2008 4:41:33 PM PDT by AFreeBird
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To: TigerLikesRooster

No doubt the Bilderbergers are behind this.


37 posted on 08/22/2008 4:44:34 PM PDT by facedown (Armed in the Heartland)
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To: Ernest_at_the_Beach

Interesting to say the least. This crap goes on all the time. And once in a while someone gets caught. I get so pissed off when I see someone cut say a $90 VOM out of it’s package and steal it, from the shelf at my store. Then I read about some real rotten thieves who most probably live in luxury at the expense of many.


38 posted on 08/22/2008 6:53:22 PM PDT by Marine_Uncle (Duncan Hunter was our best choice...Now we are left with a bunch of idiots.)
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To: Robert A. Cook, PE
Many of them would be hedge funds foreign and domestic.
Foreign ones may not be in it for purely monetary purpose. They may be waging an asymmetric war.
39 posted on 08/22/2008 9:04:21 PM PDT by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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