International Forecaster Weekly

A Brief History of Oil Price Manipulation

...manipulation has been the reason that oil prices were massively over-inflated for the past two decades, and the current plunge is an example of what happens when some of the floors are removed from under that propped-up price.

James Corbett | February 21, 2015

Igor Sechin, the Executive Chairman of Russian oil giant Rosneft, wrote an interesting op-ed in the Rothschild mouthpiece Financial Times this week. In it, he asserted:

    “The oil crisis of today is often compared with the great oil glut of the 1980s. But demand and supply is no more unbalanced now than it was on average throughout the past decade when the price was much higher. Compared with the flood of oil that hit the markets in 1985, new supplies arriving today are ripples on the water. The world is thirsty for oil. Leading analysts see demand increasing 10 per cent between now and 2020.”

    He goes on to suggest that the recent dramatic fall in prices (with Brent and WTI prices plummeting over 50% since last summer) is a tell-tale sign of oil market manipulation:

    “In today’s distorted oil markets, prices do not reflect reality. They are driven instead by financial speculation, which outweighs the real-life factors of supply and demand.”

    And so far, no one can deny that his argument is correct. But it isn't long before Sechin reveals that he has the right idea...but completely the wrong way around:

Look at the market fundamentals and it seems prices should soon rebound to the $60 or $80 a barrel levels that would make it worth building the wells that the world needs. But if markets are distorted, and the rebound takes longer than it should, many current production projects will be mothballed — and the price will eventually climb to $90 to $110 a barrel, or higher.”

    This, predictably, is where the oil CEO errs. Although he would very much like to paint the picture that oil price manipulation is artificially causing the price of oil to plummet, the reality is exactly the opposite; manipulation has been the reason that oil prices were massively over-inflated for the past two decades, and the current plunge is an example of what happens when some of the floors are removed from under that propped-up price.

    As Sechin correctly points out, much of this manipulation takes place in the derivatives markets where the price of oil (like most other commodities) is bet upon by speculators who then have an interest in covering their bets. If they are short oil they want the price to drop; if they're long, they want it to rise. And there are many ways to make this happen.

    One very specific example of a manipulation that is taking place right now involves speculators taking advantage of a contango in the crude oil markets. A contango is when the predicted future spot price of a commodity is higher than its current spot price, and the way speculators take advantage of it is by simply buying and storing that commodity until the price rises so they can sell it back into the markets at a profit. This is precisely what has been happening in recent months, with reports surfacing last November of increasing inquiries into onshore oil storage in Cushing, Oklahoma, and a new Reuters investigation showing that Trafigura, Vitol, Gunvor, Koch and other trading firms have booked as many as 20 oil supertankers to park as much as 40 million barrels of crude offshore. If the utter insanity (not to mention the monumental inefficiency) of simply buying up supplies of a product and parking it offshore to wait for higher prices doesn't strike you as a delightful get-rich-quick scheme, chances are you're not a speculator (or a psychopath), but these are the types of manipulations that increasingly drive our commodity markets, the oil market being no exception.

    But financial trickery like this is only one method for manipulating the oil price. Another key element occurs at the national level, where the Opec cartel members set price targets by agreeing to cut or increase national production.
    That this type of manipulation of the oil price occurs is not even a remotely controversial subject. In a separate FT op-ed this week, former Fed chair Alan "Bubbles" Greenspan plainly admits that the current fall in prices is directly due to Saudi Arabaia removing the floor that would usually be used to keep oil prices artificially inflated: cutting production to reduce the overall market supply of oil.

    "At the root of the price collapse was the development in the US of techniques for extracting tight oil, mostly from shale deposits, by horizontal drilling and hydraulic fracturing. This reversed the decline in US oil production, adding 3m barrels a day since 2012. As a result, the gap between global production and consumption has widened, precipitating a dramatic rise in US and world inventories and a fall in prices. Saudi Arabia, confronted with an oil supply glut but not wishing to lose market share, abandoned its leadership role as global swing producer and refused to cut production to support prices."

    As Greenspan notes, "This amounts to a marked change in the economic and geopolitical landscape, of which the main beneficiaries are the US and its allies." How convenient.

    But then, these manipulations have invariably been to the benefit, not of "the US" or its nation-state allies as monolithic entities, but of those financial interests that have long puppeteered the nation-state system. This phenomenon dates back to the consolidation of the oil industry itself under John D. Rockefeller's Standard Oil monopoly. The manipulation, backstabbing, conspiracy and treachery of family patriarch John D. Rockefeller in the construction of his Standard Oil empire is now legendary, but was facilitated at the time by the fact that his vertically-integrated monopoly allowed him to push the price of kerosene down from 58 cents a gallon in 1865 to 8 cents a gallon by 1885. During that era, driving the price of oil down was beneficial to a company (and a man) that was trying to launch an industry and captivate a market. It worked, creating the world's first (officially admitted) billionaire and launching a family whose political and economic legacy continues to infect the body politic of the US and the globe. But the same lever that allowed the first oiligarch to drive the price down is the same lever that his oil company descendants have used to prop prices up for their own benefit, as well.

    It should be no surprise, then, that oil price manipulation is at the heart of the current monetary order, or that a Rockefeller was at the heart of that story, too. As Greenspan admits in his recent op-ed, "After the oil embargo of the 1970s, Opec wrested oil pricing power from the US." This, of course, is a reference to the backdoor diplomacy of Kissinger, who, as we noted last month, was responsible for cutting a deal with Saudi Arabia at that time that formed the current "petrodollar system" that ensures constant worldwide demand for the US dollar.

    But a closer scrutiny of this development gives us a clearer understanding of the real powers behind this manipulation. As even Wikipedia will tell you (so it must be true!), Kissinger is and always has been a protege of David Rockefeller. The two met when Kissinger was appointed the director of a CFR study group that Rockefeller was a member of (surprise, surprise) and, as Wikipedia teaches us, "The relationship developed to the point that Kissinger was invited to sit on the board of trustees of the Rockefeller Brothers Fund." Since that time, the two have worked closely on numerous projects, such as the overthrow of Allende in Chile and the opening up of China for the globalist oligarchs. And they have both been long time members of the Bilderberg Group, through which they helped organize the Opec embargo crisis and ensuing increase in oil prices.

James Corbett and Alfred Adask: Financial Survival: The Apocalypse Script

    The story of how this crisis emerged and how Rockefeller and Kissinger were two of the key players at the heart of that story is a lengthy and detailed one, but it involves the May 1973 meeting of Bilderberg held in Saltsjöbaden, Sweden just five months before that crisis began. As leaked documents from that meeting published in William Engdahl's seminal work "A Century of War: Anglo-American Oil Politics and the New World Order" show, Bilderberg had discussed just such a crisis before it even began, fretting that "the misuse or inadequate control of the financial resources of the oil producing countries could completely disorganize and undermine the world monetary system" and that "Serious problems would be caused by unprecedented foreign exchange accumulations of countries such as Saudi Arabia and Abu Dhabi."  As Engdahl goes on to explain, "Bilderberg policy was to trigger a global oil embargo, in order to force a dramatic increase in world oil prices."

    The Saudi representative to Opec at the time left no doubt about who was in charge of the oil crisis and the inevitable rise in oil prices when he told The Guardian in 2001: "I am 100 per cent sure that the Americans were behind the increase in the price of oil. The oil companies were in in real trouble at that time, they had borrowed a lot of money and they needed a high oil price to save them." The Bilderbergers got their oil price increase, the oil majors' risky ventures in the North Sea suddenly became viable, and their continued economic dominance led to record profit after record profit year after year after year.

    Time and again we have seen any potential threat to the petrodollar hegemon attacked with ruthless vindictiveness by the oil/banking/political interests that are willing to do anything to maintain that status quo. When Saddam Hussein was busy fighting Iran and gassing his own people with America's blessing, he was Washington's "Golden Boy." But when he called for oil production cuts in contravention of Opec quotas in order to pay the bills from his war with Tehran, the Gulf War began to put him back in his place. When he began a Euro-denominated oil bourse in November 2000, he sealed his own fate.

    In the words of an April 2001 CFR task force report on energy security, "Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export program to manipulate oil markets." Their conclusion? "The United States should conduct an immediate policy review toward Iraq, including military, energy, economic, and political/diplomatic assessments. The United States should then develop an integrated strategy with key allies in Europe and Asia and with key countries in the Middle East to restate the goals with respect to Iraqi policy and to restore a cohesive coalition of key allies." Five months later 9/11 happened and, as we now know, Rumsfeld and Cheney were planning for war in Iraq (which had nothing to do with 9/11, of course) not the day of the event as we were previously told, but before it even happened.

    Similarly in Libya, Gaddafi went from rehabilitated villain back to Global Enemy Number One when he began floating the idea of selling Libyan oil in exchange for a gold-backed Dinar. And when a rebel in the country's still volatile oil-rich region began trying to sell oil without approval of the international oil cartel last year, the US Navy Seals swooped in to seize the oil tanker carrying the "illegal" crude as it entered national water. Let it not be said that the oil cartel suffers competition lightly.

    And now we have arrived at a new era in the history of this oil price manipulation. In this era a falling oil price is more geopolitically useful to the various interests puppeteering the prices than a higher price. But this time it's the Russian, Venezuelan, and Iranian oiligarchs who find themselves in the crosshairs, which is why the Chairman of Rosneft is now suddenly concerned about the problem of oil price manipulation. The utterly artificial oil price is fine, apparently, as long as it is working in their favor, but when the tables are turned they are the first to cry foul.

    But perhaps there is a bright spot in this story, after all. In his rage, Sechin pulled no punches, writing openly in the pages of the Financial Times that "We have not forgotten the rigging of the Libor interest rate benchmark and the gold price." There is always the chance that in creating still-powerful enemies, the cartel that has been setting the oil price for decades (at the very least) may be starting a fight between giants that will see both sides taken down a peg or two. Given the type of information about gold price manipulation, Libor rigging, and various other scandals that Putin's FSB buddies are presumably privy to, this fight could get very interesting if and when this information starts getting "leaked" or "hacked."...Did someone say HSBC?

    For the time being, the status quo remains and oil prices will doubtless continue to be set in the corridors of power until the public wakes up to the scam and begins exploring alternative energy paradigms.

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