As the year 2010 comes to a close, hedge fund managers are making huge bets on crude oil. They hold about 200,000 wagers of 1,000 barrels each that the price of "black gold" will continue to rise.
Money managers raised their net long position in Nymex crude-oil futures by 1% in the week ended Tuesday, according to data released Friday by the Commodity Futures Trading Commission.
Money managers, including hedge funds, held a net long crude-oil position of 193,048, up from 191,171, the week before.
As discussed in a previous diary, the price movement in crude oil has nothing to do with physical supply and demand. It has reached a two-year high, nearly tripling in price to over $94 per barrel despite the fact that excess capacity has risen 2.5% since hitting a low of $32.
Both [the U.S. Energy Information Adminstration and the Paris-based International Energy Agency] pegged spare capacity at near multiyear highs in November, with the EIA putting it at 4.85 million barrels a day, and the IEA at 5.56 million barrels.
Spare capacity also looks plentiful as a percentage of global oil production, which generally ranges between 83 million and 87 million barrels a day. The EIA estimated spare capacity in November at 5.6% of global production.
What's really happening is that cheap money from central banks have enabled speculators to pile into the oil trade. The global economy has essentially been turned into a 24 hour gambling parlor featuring a recurring game of monopoly. Each morning, the Federal Reserve provides tens of billions of dollars in no-cost one-day loans to Wall Street broker-dealers, who look to corner and extort a vulnerable sector of the market before cashing in their chips in the evening.
Enabled by the enormous leverage of currency swaps, $4 trillion dollars are moved across the game board every day.
To cover for the giant oil scam, the corporate financial media presents Kabuki theater to distract the public. Statistics such as paper changes in oil inventory are masked, spun and twisted so that they bear little resemblance to physical supply. While talking heads on television breathlessly report that supplies have declined, the crude storage site in Cushing, Oklahoma is filled to the brim with 45 million barrels of oil. Additionally, speculators have contracted 132 million barrels to be delivered there in January.
First of all, the NYMEX contracts for January delivery close on Tuesday and there are still 132,168 open contracts or 1,000 barrels each (132M) scheduled for delivery to Cushing, OK, a facility that can handle at most, 45Mb of crude and is, at the moment, full. The price of those barrels surged from $86.82 all the way back to our shorting target of $89 yesterday, where we once again had a nice ride down. Now, in pre markets, it is back over $89 again and we’ll short it again so I’m not complaining about the action but I am upset that this blatant rip-off of the American consumer can go on right under our "leadership’s" noses.
Logic alone dictates that if 132M barrels are on order for delivery to a storage facility that can only handle 45M barrels that the orders are mostly bogus. You can track the open interest every day right here so don’t take my word for it, watch what happens over the next few days as the people who are currently pretending to demand oil in January, roll their contracts to pretend demand for February (already at a ridiculous 268M barrels), March (172Mb) and April (60Mb).