Crude Oil Falls: A Rigged Market?

http://outpacesys.com ** So, what do you think? Is the Oil market rigged? When the markets (any markets, equities, commodities, bonds) go on some wilder-than-usual fluctuations we start hearing innuendos or flat out loud accusations about the markets being rigged, and about the presence of some "dark lords" manipulating things in the background - and about the poor members of the public being smashed around by tsunami waves hitting from all directions.

Is this something we should be concerned about? Let's look briefly at what is happening, then, as usual, we'll draw some pragmatic conclusions. You may be surprised!

News came out in force last week of the fast and violent fall of Crude Oil. In these last four months, Crude Oil lost about two thirds (almost 70%) in the markets across the world. The tone of the comments goes from deep gloom to cheerful, depending on where the writer is sitting (oil industry rep or consumer media).

But look back at early 2004, when Crude Oil took off with an incredible slope in those same price charts and in the next four years almost quadrupled up to over $147 a barrel.

So, it is only up to a few months ago that the same media, now so flabbergasted by the current low prices, that same media was then quite emphatic in pounding on the (oblivious) consumer's mind, pounding that oil is a consumable asset, once it's gone it's gone. And they were saying that the inventories were then going down so rapidly it caused prices to go up so unbelievably fast. So it was the public's fault if things were so bad. Of course, back then the public, those crazy consumers, were wildly buying huge SUV's and roaming all too freely the highway to the mall in a happily overspending mode fueled by very generous mortgage and equity lenders (whom as you know, do have a part in this saga too!).

Now, all of a sudden, these last short few months brought us a very severe crisis, recession is now officially declared, the financial sector and the automobile industry are at the same time exposed in their unspeakable and tragic greed and they are also at the receiving end of enormous rescue plans that the deer eyed public is going to pay for with their tax money (on top of having to pay their now no-longer affordable mortgages and various other debts).

On top of all this, Crude Oil has fallen from the price highs it enjoyed only in July '08 and many commentators are now very worried. And what do these commentators say is the cause of this fall? Well, it is the falling market demand that is causing all this! And the demand is down because we are in a recession and people don't buy gas anymore! Once again, we are told it is the public's fault if things are so bad.

Now, a few small questions here. The price of crude oil went down almost 70% from its highs in about 4 months, to go back where it was four years ago. And the official reason is lower demand. Are all the consumers now using bicycles to go around, did trucks mount sails on their roofs and use wind power to cruise the interstates, are we all burning wood to keep warn on Christmas night? We think not, so this huge price drop seems, let's say, a bit oversized. Although it did come, well, just at the right time to give some slack to the battered consumer (oh, and the banks, of course and the automobile makers etc).

And yes, one could start wandering if there are any additional forces behind all these changes. We are not even trying to comment on that.

But should the average consumer be really worried about these "dark" forces, that seem as hidden and undetectable as dark matter in outer space?

We don't think so. Because today it is possible to follow what is happening in the markets, make educated guesses, actually better than that, one can define high probability estimates of the ongoing trends and correct accordingly one's exposure to the market. A very strong signal alerting of the impending down- turn in Crude Oil was available by the end of July.

The market went down without a break ever since and the informed investor was able to benefit from that fall using very approachable and non-threatening tools, such as stocks and ETFs.

Dark Powers may (or may not) be in motion around us, but we don't need to be squashed by any of this. A bit of work can actually give you full capability to profit from it all.

Category:

News & Politics

Tags:

• Crude Oil
• Rigged Market
• crisis
• recession
• consumers
• outpacesys

[hume12345]

i think the markets are rigged to high heaven. and we expected to believe that energy desperate china wouldn't buy all available oil it can get it's hands on. hu jintao is clocking up frequent flyer miles just to see if anyone has any spare oil for him to buy. brazil, venezula and nigeria have all had a visit from him this past year. to compound my certainity (if any were needed) is china is the biggest creditor nation in the world, it can afford to buy up any slack.

[Nickalispicalis]

World demand is down by about 10%. This does not explain Oil's rapid crash. The Oil Paper traders have much more to do with it.