The
Multi-Trillion Dollar Oil Market Swindle
By Leonard Brecken
July 14, 2015 "Information
Clearing House"
-
"Oil
Price" -
In the
past, I documented the
overstatements by both the
IEA and EIA in 2014 & 2015 in terms of supply, inventory and
understatements of demand. Others also noticed these distortions
and, whether intentional or not, they exist and they are very large
in dollar terms. These distortions, which are affecting price
through media hype and/or direct/indirect price manipulation, are
quite possibly the largest in financial history.
Putting numbers behind it, with worldwide
production running some 95 million barrels per day, and assuming $55
per barrel for oil, the market for crude oil is about $5.2 billion
per day. Each $10/Barrel change is worth nearly $1 billion/day or
$365 Billion/year for the worldwide crude oil market. Add the
worldwide equity market caps of oil and oil related equities and
debt you have a scandal that is in the trillions; a number that
cannot be ignored.
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According to Cornerstone Analytics, who have
documented the IEA systematically underestimating demand in
2012-2013 only to revise it higher quarters if not years later, the
EIA has created the appearance of an imbalance of supply by some 500
million barrels or $2.5 trillion in the last 5 quarters alone. This
has easily swung oil by at least $20/barrel if not more.
I have maintained that oil should have corrected
to around $70 in the fall of 2014, tied to U.S. production increases
which at the time represented the price at which drillers would
continue to add to supply. That price tied to cost reductions has
probably been reduced to $60ish currently. But today, with the
consensus oversupply widely quoted in the media as some 2 million
barrels per day worldwide, it’s clear that if the numbers are
correct below, the perceived oversupply wouldn’t exist at all.
Suffice it to say prices would be at least at the point where
production would need to be added, perhaps around $60-$70 per
barrel, if not higher.
Assuming that number at $70 and with the blended
average of WTI & Brent at $55/Barrel approximately, at $15/Barrel
given the 95 million barrels of global production, then we can
estimate that global oil markets are being undervalued by about
$1.425 billion per day or over $500 billion per year.
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Furthermore, I don’t even take into account
whether oil futures are being manipulated (much like FX, GOLD, LIBOR
– all have been either accused of or been caught in rigging
scandals) along with every other commodity as a result of oil’s
collapse and its financial impact.
Why regulators, and especially the media, refuse
to address this, even in theory, and instead choose to perpetuate
the falsehood of oversupply is beyond me. In the last two months,
E&P equities fell 10 weeks in a row, which hasn’t happened since
1989.
To answer our own question on why this entire
event is being largely ignored, maybe that oil is thought to spur
higher economic growth as suggested previously. But so far that has
yet to even materialize as U.S. GDP growth has actually
slowed, not accelerated. Only time will tell whether this
exaggerated move in oil, as well as its volatility, is justified or
not. As reported
here, the EIA has already revised lower, though only slightly,
its prior month’s production forecast as we predicted. Look for more
of this to come.
By Leonard Brecken of Oilprice.com
© 2015 OilPrice.com