The 'Enron Loophole' and energy speculation Dark Markets

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T. Boone callin' it as he sees it...

Pickens sees $300 oil unless U.S. cuts crude imports
Tue Jul 22, 2008 WASHINGTON (Reuters) - Oil prices will hit $300 a barrel in 10 years if the United States fails to reduce its dependence on foreign imports, billionaire oil investor T. Boone Pickens told U.S. lawmakers on Tuesday.

The United States imports nearly 70 percent of its oil and Pickens said the world's top petroleum-consuming nation would import 80 percent in a decade if it does not aggressively tap its own natural gas and renewable resources. "If we continue to drift, oil will hit $300 a barrel in 10 years," Pickens testified at a hearing of the U.S. Senate Homeland Security and Governmental Affairs Committee.

He testified as the Senate planned to debate energy legislation amid calls for more oil drilling to help lower oil prices which hit a record this month of over $147 a barrel. Pickens has been touring the country pushing a plan under which domestic natural gas supplies would be used to power cars instead of electrical power plants. The federal government and private investors would build a massive wind farm system in the middle of the country from Mexico to Canada to provide electricity.

Pickens, who heads the hedge fund BP Capital, stands to benefit from such a program. He's building a 4,000 megawatt, $10 billion wind farm in northern Texas that should start generating power in 2011. Industry group the American Wind Energy Association (AWEA) has said the Pickens plan could work if the government renews the production tax credit for renewable energy, preferably for longer than a year or two.

More Pickens sees $300 oil unless U.S. cuts crude imports | Reuters

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How else ya think they gonna pay for it?...

Kuwait plans $132bn dream city
July 22, 2008 - FUELLED by soaring oil prices, Kuwait has ambitious plans to invest $132 billion building a model city in its northern desert, complete with rail links to the rest of the Middle East, central Asia and China.

The high-concept project may seem outlandish on one level, but Kuwait's leadership is committed to the plan, according to one of the project's originators, who argues that it could bring unprecedented political and economic gains to the region, including establishing better business ties with Israel. "We are not dreamers at all when we talk about investing $132 billion," said Sami Alfaraj, president of the Kuwait Center for Strategic Studies and an adviser to the Gulf Cooperation Council, a group of six mostly oil-rich Gulf states.

"We're thinking on a different plane because we cannot afford to think like everyone else. We're thinking about something that might seem unimaginable. "We're going to outmanoeuvre everybody who is going to remain in the old mode of thinking about economic prospects." London-based architects Eric R. Kuhne & Associates have drawn up designs for the project, to be called Madinat al-Hareer or Silk City, which would include a 1000m skyscraper.

The city, set for completion in 2023, would be home to around 700,000 people and linked to the capital, Kuwait City, by a dedicated mega-causeway. But more importantly, it would also be linked to the rest of the Middle East, Europe and far-flung corners of the world by rail, principally as a trade route. "It is the official policy of the state of Kuwait to build this city and to link it to Damascus, to Baghdad, to Iran and all the way beyond. This is where we want to put our money. We want to build railways all the way to China," said Alfaraj, who also advises the government on security issues.

"We hold the keys to a lot of things, but it's not just money. For small states like us, the important thing is not oil, it's not money, it's influence. If we do not use oil or money to increase our influence in a peaceful way, we have no existence." At a time when Kuwait, with the world's fifth-largest proven oil reserves and among the top oil exporters, is sitting on massive petroleum profits, the funding is already in place. But aside from that, it is the regional economic and social gains, including potentially closer, deeper ties with Israel and the Palestinians, that Alfaraj emphasises.

Kuwait plans $132bn dream city | NEWS.com.au

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Spidey in the woodpile gets found out...

Traders manipulated oil prices - U.S.
July 24, 2008: Regulators claim firm attempted to 'bang the close' by amassing large positions just before markets closed.

The government charged an oil trading firm Thursday with manipulating oil prices in the first complaint to be announced since the regulators began a new investigation into wrongdoings in the energy markets. The Commodity Futures Trading Commission accused Optiver Holding, two of its subsidiaries and three employees with manipulation and attempted manipulation of crude oil, heating oil and gasoline futures on the New York Mercantile Exchange. "Optiver traders amassed large trading positions, then conducted trades in such a way to bully and hammer the markets," CFTC Acting Chairman Walt Lukken said at a press conference. "These charges go to the heart of the CFTC's core mission of detecting and rooting out illegal manipulation of the markets."

In May, under the backdrop of record oil prices and calls from legislators to crack down on speculative oil trading and market manipulation, the CFTC announced a wide-ranging probe into oil price manipulation. The agency says it has dozens of investigations ongoing. The complaint filed Thursday names Bastiaan van Kempen, chief executive; Christopher Dowson, a head trader; and Randal Meijer, head of trading at an Optiver subsidiary. The CFTC said the firm attempted to "bang the close" by amassing large positions just before markets closed - forcing prices up - then selling them quickly to drive prices down and pocketing the difference.

The alleged manipulation was attempted 19 times on 11 days in March 2007, the agency said. In at least five of those 19 times, traders succeeded in driving prices higher twice and lower three times, according to the CFTC. Calls to Optiver seeking comment were not answered, and an email was not immediately returned. CFTC stressed that the price changes were small and the manipulation was isolated, and that the investigation has nothing to do with the recent heat the agency has taken on Capitol Hill over rising oil prices.

Traders in the spotlight

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BP playin' into the hands of speculators...

Oil falls despite Georgia strife
August 12, 2008: Investors worry more about slowing global demand for crude than about disruption of supplies flowing through the embattled region.

Oil prices declined Tuesday as investors wrestled with ongoing concerns about falling global demand and worries about supply disruption in Eastern Europe.

U.S. crude for September delivery fell $1.44 to settle at $113.01 a barrel on the New York Mercantile Exchange. Earlier it had climbed $1.50 to $115.95 a barrel on concerns that fighting in Georgia would disrupt the flow of oil between Asia and Europe.

But concern about supply disruption in the region failed to keep prices higher as investors worried that slower non-U.S. economic growth would eat away at demand. Oil's recent price slide has knocked about $34, or 23%, from oil's peak price of $147.27 on July 11.

"Unless it worsens, the Georgia-Russia conflict is having comparatively little impact compared to what it would've done [had it happened] in June," said Ann-Louise Hittle, oil analyst at Wood Mackenzie.

More Oil falls despite Georgia strife - Aug. 12, 2008

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BP shutters Georgian pipeline
August 12, 2008: Oil company says it closed the 90,000 barrel a day Baku-Supsa pipeline that flows through the embattled nation, but that no damage has been reported.

BP PLC said it shut down an oil pipeline that runs through Georgia on Tuesday as a precautionary measure, but added that it is unaware of any Russian bombings on pipelines in the region. BP (BP) said the 90,000-barrel-a-day pipeline to Supsa on Georgia's Black Sea coast from Baku in Azerbaijan will remain closed indefinitely.

Another pipeline operated by the London-based oil company in the former Soviet Republic, the larger Baku-Tbilisi-Ceyhan pipeline, is already out of action after a fire last week on its Turkish stretch. The BTC pipeline usually provides around 1 million barrels of Caspian crude to international markets.

BP spokesman Robert Wine said the Baku-Supsa line was closed because it runs through the center of Georgia, where there was greater risk of conflict. However, he added that BP had no reports of damage to pipelines in Georgia, despite claims from some officials there that Russian forces had attacked the lines. "I think those reports out there are inaccurate," he said.

More BP shutters 90,000 barrel a day Georgian pipeline - Aug. 12, 2008

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Are oil companies the speculators?...

Are Oil Prices Rigged?
Friday, Aug. 22, 2008 - We've all read that speculators are driving oil prices artificially high — a claim that gets more interesting in light of oil's recent fall below $115. But maybe we're looking at it from the wrong perspective.

Suppose that major suppliers in the oil industry are these manipulative speculators. Is it possible that oil prices are rigged? You bet. Here's how:

Just how would you raise prices if you were an oil supplier? Controlling the supply — as in the 1973 OPEC embargo — has become less effective with more sources of oil worldwide. And oil suppliers clearly cannot raise prices by controlling demand in the physical oil market; ultimately, they need to sell their oil, not buy it. However, with the market inefficiencies that we expose here, oil suppliers can regain the upper hand by artificially inflating demand using a different market. To understand this mechanism, we must take a glimpse into the future — the futures market, that is.

The price of oil reported in the news is actually the price of oil in the futures market. In this market, traders do not exchange physical barrels of oil, but instead trade contracts which obligate them to exchange oil at a quoted price at a specific date in the future, usually months in advance. Such a contract allows companies to hedge positions by locking in prices early. Airlines might buy futures contracts to reduce their exposure to rising fuel prices. Conversely, oil companies might sell futures contracts to assure a profit against future price drops. It's all about reducing risk and uncertainty. But what if oil suppliers were instead buying oil futures, compounding their own risk and reaping enormous profits from the explosion in the price of physical oil?

More Are Oil Prices Rigged? - TIME