Don’t be conned – it’s not supply or demand driving oil right now.
The shell game is one of the oldest cons on record. Greek historians tell of ancient Egyptian slicksters stripping rubes of spare coins in the shadow of the pyramids. We have concrete evidence dating back to 1670, wherein Richard Hull writes of rogues cheating farmers at “thimblerig” at ye old faire.
The con was supposedly brought to the colonies by a Dr. Bennett, who was infamous for his ability to hide a pea amongst three walnut shells. Jefferson Randolph Smith – a.k.a. “Soapy Smith” – set up mobs of shell men throughout the Midwest and Alaska before he was caught out and shot in Juneau in 1898.
Today we are once again seeing the rise of this classic fiddle. I am not talking of impossible games of Three-Card Monte played on dark side streets off Times Square or such. Rather, I am speaking of the grand swindle that is being foisted on us concerning oil prices.
It’s Not Under That Nut…
If you peruse the newswires, you will see numerous reports that claim to explain why crude oil has hit $70 a barrel, and where it is headed next. And while they are all replete with supposed “facts,” not a one of them actually gets anywhere near the truth. Rather they attempt to draw your attention as far away as possible from the real issues facing us today.
“Oil is up,” the headlines shout, “because the recession is ending.” A peculiar claim, because most productivity reports note that the numbers are still falling, albeit ever so much more slowly than they have been.
Other analysts state that the tepid recovery will actually be the death of oil. They figure that oil prices are actually following some kind of logical demand curve.
Friends, I will tell you right now, that the pea is not under that shell.
… Or This One Either!
Then there are the analysts who claim that oil prices have nothing whatsoever to do with demand. Rather, this whole rise has been the result of manipulated supply. Oil is actually up because OPEC has reduced output. Not only that, but gasoline is up because no one wants to build new refineries in California.
Don’t even bother lifting that shell, Champ. The pea’s not gonna be there either.
OPEC’s reported numbers almost never match this most contentious of cartels’ members’ actual output. Someone always cheats and sells into the grey market. I am told that the real production variance from peak to trough is maybe 5% at best.
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Floating Futures (Literally!)
And then there is the most peculiar fold I’ve heard in recent days. It seems that at oil’s very bottom a few months back, speculators loaded up a fleet of some 33 supertankers and sailed them about aimlessly waiting for better prices.
Now some seven of those tankers are reputedly heading for port looking to unload their $33 crude at the current $70. Talk about taking future hedging literally!
And just to put even more backspin on the ball, I have a report on my desk right now claiming that there is enough oil in those tankers to substantially reduce oil futures by and of themselves.
Shills, I say. Shills one and all.
Where the Pea Really Was the Whole Time
So long as you focus on logical issues like supply and demand, you will never find the pea, folks. Because the price of oil has almost nothing to do with anything going on at Middle East pump-heads or American Refineries.
All of that action is mere distraction – the waving of hands while disguised shills pick your pockets clean. This whole con pivots entirely around the actions of those few grey men in back rooms in Washington, DC, who spend their days seeing to the astounding proliferation of U.S. dollars.
Here is a chart showing crude oil futures’ 74% decline in 2008 and its 76% recovery in 2009.
Nothing new here to see. As I mentioned earlier, most every wire service and cable news talking head has been regaling you for days as to how oil rushed from $50 to $70.
It’s All About the Benjamins
But here is a chart of U.S. dollar futures during the same stretch. Note the increase in value of each individual dollar as Wall Street massive holdings are devalued via the whole mark-to-market debacle.
Now note how the dollar falls as Washington attempts to re-inflate Wall Street’s bubble with billions of fresh new dollars. Glance back up at the chart for oil, and you will see our con artist’s little hidden pea. See how oil’s collapse and return does not coincide with any real change in demand? I mean sure, demand fell a bit… but 75%? I think not. Nor does it match any real change in output. Again, that factor may have varied a whopping 5%. Or not.
Rather, oil prices walk in perfect reverse tandem with the dollar. And we all know what Washington is doing with dollars these days.
Not everyone is fooled by the sly subterfuge of supply and demand. There are plenty of insiders who know exactly how the con works.
When you read that Goldman’s Arjun Murti is calling for oil to increase another 18%-20% this summer and fall… Or that Black Rock Energy and Resources (the most accurate mutual fund on record when it comes to oil profits) is calling for crude to climb 30% over the next few years… you have to know that they are watching the proliferation of dollars more than any other indicator.
They know where the pea is, and how to profit off it.
And now so do you.
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written by Richard Salomone, June 17, 2009
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written by Fred Weber, June 13, 2009
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