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Refiners actually try to keep low inventories to have illusion of ‘tighter’ markets
Gasoline supplies had a substantial build in inventories, up 3.1 million barrels, and looking back at the EIA data, July is in the heart of the summer driving season, and refineries run at their highest utilization rates. Well, there has never been a period in July where inventories are as high in gasoline supplies as currently exists in recent energy statistics. We have to go all the back to 1992 to find supplies for the July period higher than they are right now, and it isn`t by much.
Gasoline Supplies and Oil Market Propaganda
It is funny all the propaganda that consumers get fed as to why they pay so much at the pump, it is all total hogwash. The oil market is one of the most rigged markets that actually have fundamental uses for the product. Stocks are rigged in many ways, earning`s reports are gamed via stock buybacks to beat on the EPS, but these companies are really missing bad if you look at the revenue misses. Mind you, revenue targets are set so low that these companies cannot possibly miss, yet companies have been missing consistently for the past couple of years.
Expect Higher Gasoline Inventories Next Week!
But there isn`t a fundamental market use for stocks like a commodity which has consumers who buy a product to get to work each day. One where it makes sense for example if supplies are high, i.e., not a tight market, that prices should come down to lower supplies and sell more product. This is what happens in a fair market which is not rigged. Consumers should be infuriated that they are paying some of the highest prices for gasoline when oil supplies are very high, domestic oil production is at 20 year highs, and gasoline inventories are higher for this time of year than any time in the last 22 years!
Congress is Investigating the wrong Culprits
Talk about getting ripped off! It was interesting that Congress`s response was to bring the refiners into recent hearings to discuss why prices jumped so much lately. I imagine refiners getting screwed by the collapse in the WTI-Brent spread, probably are going into futures markets and pushing up product prices to help their margins since they can no longer count on a $25 dollar spread to fatten their margins. So they are to blame I am sure to some extent, but Congress needs to focus on the Banks and Hedge Funds, they are the real culprits for outrageous prices here.
JPMorgan Chase & Co. (NYSE:JPM)’s Trading Group Started this Volatility Trading Rally
It all started with J.P. Morgan`s call that they believe commodities have gone down far enough and that they should be bought. This was the start of the move up in oil, and thus product prices. You can rest assured that they have profited nicely on this move. So Congress needs to bring the investment banks that specialize in running up these energy prices, and they will see a pattern of abuse the last five years. These same firms make their public research calls, after they are properly positioned, and then strategically push up prices as high as they can.
Trucking, Airlines, Retail, Restaurants all Pay for J.P. Morgan`s Energy Trading Profits
This usually ends in dramatic drops in demand because prices are too high for consumers and the economy starts decelerating. And why shouldn`t it? Think in terms of the trucking industry that has to use fuel to transport all kinds of goods across this country; their operating costs just went up 15% in a month! The other way this ends is the president threatens an SPR release, I know kind of stupid with record levels of supplies. But the speculators run out of the market like rats in a flood of selling. The other way speculators get out of this bullish run-up is equities or other assets get sold off, and given that oil is more tied to equities than the actual consumers, it gets sold off with equities.
The Investment Banks artificially create “Volatility” in the Oil Markets
So forget about the refiners Congress, the investment banks are the ones that you need to bring in front of congress! Subpoena their trading records for the last five years and the patterns of manipulation will emerge rather clearly. This run-up like all the others is for trading profits. There never are real supply issues in the oil market.
WTI $12 Higher Than EIA Average Price for the Commodity
The EIA has an average price for oil at around $94 a barrel for the year. Oil could basically trade at $94 a barrel 365 days a year give or take a dollar or two. But these investment banks like Goldman Sachs Group Inc (NYSE:GS), Morgan Stanley (NYSE:MS), Barclays PLC (NYSE:BCS) (LON:BARC), and J.P. Morgan cannot make any money with a steady, stable market.
These firms need to “manufacture” supply shortage scenarios to create volatility in the energy markets so they can make money.
Mark my word, these same firms will be talking about how gasoline supplies are heavy for this time of the year in a couple weeks when they push oil back down to $90 a barrel. This happens 7 or 8 times a year for the last 5 years. It is all a “volatility trading scam” to make money!
This is what Congress should be investigating, and not a bunch of refiners trying to make a little margin. Get your act together, and bring in J.P. Morgan and Goldman Sachs these are the real reason consumers are getting screwed at the pumps once again!
If I-Banks Love Energy so much, Make them Take Physical Delivery!
I repeat gasoline supplies for this time of year are higher than at any time in the last 20 years, and it isn`t even close. Moreover, there are plenty of oil inventories, well above historical levels, if refiners need any more gasoline.
So why in the heck are consumers paying record prices right now? This is the definition of a “Rigged Market”, and these are the questions that Congress needs to be asking these banks.
The alternative which is what I favor to get right down to the crux of the issue would be to overnight make everyone holding a futures position in every energy market take delivery of the contract!
Short of this I would threaten release of the SPRs to make the speculators pay for trying to push/rig a market for the creation of “volatility trading profits”! It is hard to have a losing day trading for a quarter when Congress is busy interviewing refiners, while the I-Banks can move Oil up and down $15 dollars many times a year without any consequences from Congress!