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Why Are the Big Financial Institutions Selling Oil BIG?

By Torkel Nyberg | Thu, 07 March 2013 22:29 | 18

A Crude LENR Hypothesis

The Commitment of Traders Report reveals interesting data.

For two years now, Sifferkoll has been following the energy markets in relation to a possible LENR (cold fusion) technological breakthrough. The basic idea is that, if there is an information advantage, the big banks will acquire it and use it to make as much money as possible. If such actions can be shown, it is in itself good indications of a proven breakthrough.

And there is money to be made. Not yet from the new technology, but from a plunging energy market (oil, coal, natural gas, etc.). The Commitment of Traders report (CoT) published weekly by CFTC (U.S. Commodity Futures Trading Commission) has been analysed. This report shows the actions and positions of the different market participants in the crude oil futures market. It reveals some interesting data.

Crude Oil WTI Weekly
Fig 1, Crude oil futures; price, CoT (standard & disaggregated report). Please click to enlarge.

At some point during the fall of 2010 there was a large policy shift in hedging crude oil on the NYMEX futures exchange by the big banks and the oil companies. Up to that point the hedgers of crude have largely been the producers as they want to hedge their production against future price movements. On the buy side there was the big financial institutions (Swap Dealers = JP Morgan, Goldman Sachs, etc), and the money managers (large pension funds, hedge funds, etc.), that speculate in a price increase.

But during the fall of 2010 this state of affairs changed. From being net-long 200 thousand contracts, the banks became net-short in a couple of months. Their selling has since continued. And now, by March 2013, they are net-short 300 thousand contracts (300 million barrels of oil = $30 billion). See the green lines in the chart above.

At the same time the producers have liquidated their 200 thousand contract short position (blue line above). They are no longer hedging as they used to. And they've done it in a very consistent way. It looks almost unreal, buying an equal amount of contracts each month for two years.

Related article: Anadarko's Horizontal Wattenberg Wells are Moneymakers

During this time the banks have consistently been using a strategy to buy weakness and sell strength during their massive net-selling. As if their strategy was to build a huge short position and at the same time stabilize price. The conclusion is that the banks are now net-short about 300 thousand contracts at a price about $90-$95.

On the buy side the money managers went from being neutral by fall of 2010 to being net-long 250 thousand contracts as of today. This is of course the big funds, and in the end pensions and savings. They are now net-long oil and of course net-long all the producers (oil stocks).

Researching this strategy change has given very little information. One article though, from July 2012, touches on the subject. No answers and no explanations though. Insidefutures.com

Following the Commitments of Traders Report (CoT) does however reveal a great deal of information. The standard report shows the commercial traders, (oil companies and banks), large speculators (big funds) and smaller speculators (the rest). The disaggregated report also shows the position of banks and producers respectively. Both these reports are shown in the graph above. The combination does tell us that something is going on, but what?

Something real is going on, but what?

Why are the producers abandoning their decade long hedging strategy? Why are the banks selling oil like crazy and at the same time actively acting to stabilize the market, probably in the range $80-$100? What information do the big banks and big oil use to make these decisions? Is this information readily available?

Hypothetically: What if the first customer of Rossi actually is the US Navy? What if the US Navy know for sure that the 1MW E-cat works (because they have bought several)? What if they actually knew this even before the first public demo of the E-Cat in January 2011? Since the test was decided upon sometime during the fall of 2010 and Rossi himself says he had run a heater in a Bologna factory during a year before that, it looks reasonable. So let’s assume that this is the case.

It is certainly in the big banks interest to know about these things, and they do have the resources to find out, and keep quiet about it. It is also well known that US entities like SPAWAR and NASA have researched LENR for some time. There are documents that show that they acknowledge the technology and have done so for some time. However, so far, not on the industrial scale of the 1 MW E-cat.

Since US entities acknowledge LENR, they did what was needed to verify the E-cat when they heard about it. Because even if they thought the E-cat was a scam, they could not afford not to check on it.  Even a minute chance that Rossi was on to something would cover the expense and risk. The money involved are simply too big for a miss like that.

Also, if US military entities know, then the big banks know, and at least the producers where the big banks have big interests know. Anyhow, they certainly know by now if the first customer is the US Navy, as Rossi (almost) says, and nobody denies.

The thirty billion dollar question is how to make as much money as possible from this information.

First they probably thought that the E-Cat demo could get the price of oil to drop already in the beginning of 2011. They certainly was prepared for it by February 2011, as the aggregated net-short position of big banks and producers was in excess of 300 thousand contracts already at that time. But the price went up, since media did not catch on and other issues (like the war in Libya) were much more important for the oil market at the moment.

When the plunge didn't happen a new strategy evolved. The producers then started to liquidate their short positions in a very consistent way. This short position have been taken over by the banks probably in cooperation and as a risk reducing strategy, although not as consistently, since they've been trading against the market most of the time, buying weakness, selling strength.

Related article: Renewable Energy Companies to Keep an Eye On

By the time of the 1MW demo they probably had Rossi more under control as they simply became the first and only customer for all the 1 MW E-Cats he could produce during the coming 18 months. They played the game the way Rossi wanted it (as his goal is mainly to sell the E-Cats he produce). And since very few people take Rossi seriously there was no problem keeping the news out of media and off the Internet (except for some dedicated sparsely visited sites).

So. What if the banks know about LENR and they are preparing for the oil price to plunge. It would make some kind of sense looking at their actions. It's reasonable to expect that when the possibilities of LENR becomes widely known by the public, that will be the case. It might drop by 80%, or to the production costs of the easy access reserves. New explorations will be abandoned, shale oil & gas, deepwater oil and oil sands will be abandoned, other green technologies, like biofuels, solar and wind, will also be abandoned, etc. The long term growth potential of the oil industry will vanish in a day. Actually, we already see signs of this development as several large oil fields are up for sale or already sold. There is a widespread divestment strategy among big oil (Shell, BP 1, BP 2, Exxon, ConocoPhillips, etc.)

If this happens oil stocks will plunge as well, since their stock price reflects many years of potential growth and huge profits, which will evaporate within 10 years. The hedge that they used to have, will then be of limited use, since the stocks will  fall for other reasons anyway. The strategy is probably to let the banks profit from the price movements directly instead. The managements of big oil are probably an important part of the deal, since they will, of course, benefit personally. But the oil business, as the most profitable business in the world, will be history. Big oil will simply merge with big banks in the form of big cash, but only after the oil stocks have crashed.

Meanwhile the strategy of the banks is to sell oil and oil stocks to the money managers as much as possible while keeping the price in the desired price range of $80-$100. They will keep doing this until the news of almost free green and unlimited energy reaches the public. This can happen within a couple of months with a good third party test or any other serious breakthrough in LENR area, or it can take much longer. The banks will buy as much time as they can by keep satisfying Rossi with discrete orders and inducing doubt in media, while increasing their net-short positions. The longer it takes, the better for the banks. They already have the information advantage.

Looking at the forecasts from the big banks it's obvious that they produce forecasts in the $90-$100 range for the coming year(s). The problem they have is one, to defend the low price of oil in this peak-oil-era and secondly to avoid price hikes which will result in huge paper losses on their books, from their short positions. They seem to do this by pushing information on new developments of shale, deepwater oil and Canadian oil sands to anchor the price at about $90, and at the same time induce hope in new abundant resources (Reuters, Financial Times, FoxBusiness). There are, however, several reports stating that the costs are too high and the volumes way too low for these new resources (Zerohedge). It's a delicate balance act.

The real reason for the relatively low range bound price of crude for the last two years, is simply huge short selling and anti-trend trading by the big financial institutions (JP Morgan, Goldman Sachs, etc.). The reasons for this might be a political agenda executed by these ”swap dealers” to keep the price in a certain range for macroeconomic growth reasons, or maybe, which is the hypothesis of this report, they know something that is not yet publicly accepted. LENR might already be a technological fact on the industrial scale, and not further away in time than the banks can manage to keep it secret. This makes a huge difference on the outcome. Maybe this is exactly what they know. It certainly would not be surprising if they have verified the E-Cat and actively trade on that information. The information advantage is huge and so are the potential profits.

By. Torkel Nyberg

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Thu 07 March 2013
Why Are the Big Financial Institutions Selling Oil BIG?

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  • Anonymole on March 08 2013 said:
    And Russia, Saudi Arabia, Venezuela, Nigeria, Iran, and all the tiny countries that rely upon an oil based income are all going to just roll over and watch this "Rossi Says" poser take their trillions of dollars in income?

    And the billions of dollars that the oil cartel is already investing in drilling the Arctic, that's has no bearing on this theory?

    And the massive shale oil discover in Southern Australia, yeah, they'll just leave that in the ground because Rossi and Defkalion have these publicly demonstrated, completely verified LENR devices.

    And the fact that the LENR evidence that has been proven in a controlled environment has given merely fractional kilowatts of EROI, that somehow has the world singing an NFE tune (nearly free energy).

    It's a nice dream. I'd like it to be true. But, it's not.
  • sifferkoll on March 08 2013 said:
    Anon, you clearly misunderstood the subject and the main question of the article: Why have the BIG banks according to CoT data been building a huge short position in oil since early 2011?
  • walker on March 08 2013 said:
    In reply to Anonymole

    The Oil Companies have been selling their Oil Fields.

    Do a Google Searches:
    "Oil Field" Divest
    "Oil Field" Sell

    You will notice that BP sold half its share in the Arctic that you are so hot about, they also sold off their Russian assets, their North Sea holdings and much else. Ditto Shell who have pulled out of Nigeria and South east Asia. Exon have pulled out of Iraq and the Caucuses, and that is just a sample. Petrobras are desperate to sell a Texas oil refinery they spent years acquiring the controlling interest in. There are lots of other companies doing the same.

    Add in specific oil company names if you want to specify your search.

    They have then been talking up their "Buying" US Shale Oil only it is not buying it is leasing options. In other words the money remains in the bank until they choose to take up the option, which of course they won't.

    Anyway an examination of total proven reserves in the US including Oil shale shows it is less than 1% of world proven reserves and it is the most expensive oil to get out of the ground and not of very high quality meaning refining costs are bigger.

    So are big oil really going to fill the world wide oil requirements that selling off this massive amount of proven lower cost easier to refine oil involves; with the minute percentage of hard to get get at low grade oil in US shale? The figures do not add up.

    We then come to other indicators:
    Iranian Oil is not on the market, yet the price per barrel of oil since May has been dropping like a stone.

    The Nuclear Fission Industry is in terminal decline cancelling major project after major project, and this despite it being universally recognised we are past Peak Oil.

    Siemens pulled out of the Nuclear Fission Industry around September. They also sold off their $33 Billion Green industry where they were market leaders. Since then they and GE have been buying up Combined Heat and power companies, they even made a one and quarter billion dollar offer on a company in Italy that was previously a few hundred million but they got Outbid. The company was linked to Rossi and is believed to have worked on E-Cats.

    There are now about a dozen companies that have anounced they are working on LENR products round the world. They are all in a race to Market. Rossi is probably in the lead but do not dismiss Defkalion or Brillouin Energy Corporation there is a list here it is not complete and does not include Big Companies that are quietly beavering away like say Toyota and Mitsubishi:
    http://www.lenr-forum.com/forumdisplay.php?15-English-The-Business-Lounge

    I do not believe the Oil companies have got out of oil all together it is still used for chemicals and plastics and LENR will not happen overnight, say five to ten years. What they have done is let some one who is not looking properly, take the hit for the drop in asset value. After the asset value has dropped they will step back in to buy the assets at the new market rate and pocket the profit between what they sold at and what they buy back at as a healthy profit and big bonuses for all!

    This they will then invest probably in the space industry; you may have noticed that there are lots of new space industry start-ups this year ;)

    And of course NASA has announced LENR was real last year:
    http://futureinnovation.larc.nasa.gov/view/articles/futurism/bushnell/low-energy-nuclear-reactions.html

    Since then LENR has been coming along in leaps and bounds NASA's latest announcement makes it clear where we are going:
    http://climate.nasa.gov/news/864

    The story has been taken up in a diverse set of media from Gizmag to Forbes and Physics magazines among many others:
    http://www.gizmag.com/nasa-lenr-nuclear-reactor/26309/

    http://www.forbes.com/sites/jeffmcmahon/2013/02/22/nasa-a-nuclear-reactor-to-replace-your-water-heater/

    And the theory is now beginning to be understood, so the physics and chemistry text books will need to be rewritten.

    We are in for an exciting ride over the next decade, holidays in space anyone?
  • Iggy Dalrymple on March 08 2013 said:
    I would like to believe this but I don't.

    IMO US oil is not cheap. It's pretty expensive considering the huge increase in US production.

    I think the big banks are oblivious to LENR.

    LENR's big impact will be on natural gas. It will likely take much more than 10 years for LENR to impact oil
  • Garry on March 08 2013 said:
    What about secondary markets that depend on energy from oil? Walker above discussed heat to electricity companies. But what's happening to companies that make, say, refinery equipment? And what would be the consequences to various industries of cheap oil-- by which I mean cheap precursors for plastics and chemicals? Would it be cheaper to fertilize plants? So is investment in "farming" something to consider? And so on... Analysis of the potential ripple effects would be interesting as well.
  • walker on March 08 2013 said:
    Several existing industries will benefit from cheap heat.

    Building industry: Cement is a major user of heat as are brick foundries. Wood drying and the paper industry are also vast industrial users of

    But also other higher temperature industries will use LENR to Preheat.

    As I pointed out Rossi's plant at least allows combined Heat and Power. And President Obama brought in a rare executive order to Licence the placing of combined heat and power units in any factory. So Factories can heat them selves and provide their own electricity. Or a Shopping complex can heat itself and provide lighting and power for all its electrical functions.

    Excess electricity can be sold on the local grid or given away free to local customers as an incentive to shop there. For Factories and shopping complexes then excess heat can be given to neighbours as goodwill.

    Local Swimming pools costs will drop through the floor. Expect a wealth of steam rooms to spring up. Ditto Steamed food outlets.

    The major initial decrease in food production costs will be the death of the pesticide industry. With live steam you just sterilize the ground once a year then infect it with your ideal bacteria.

    In the long term look to Vertical farms under Wal-Mart or Tesco hypermarkets using Hydroponics. There is already one in Singapore, but with LENR providing energy for light you can just dig a vertical hole under you hypermarket and grow all you fruit and veg organically using a vertical conveyor belts. You thereby zero your transport costs.

    And of course as Rossi himself has said fresh clean water will now be available to all in Africa and the third world. It will also allow us to green the deserts and remove some of that CO2.

    And that is before we get into transport and the improvement of the technology. LENR is currently at the stage of the Thomas Newcomen steam engine at the start of the powered fossil fuel age eg even before James Watt patented the modern steam engine.

    That we will improve it faster than the steam age did is a given. The speed of full deployment of new technology is now sub decade, read your Ray Kurzweil the speed of advance is on logarithmic curve.
  • Omega Z on March 08 2013 said:
    Iggy

    Your thinking short term. These Contracts/leases are for Oil that wont be touched for another 20 years or so.

    Only small Oil companies think in 5 to 10 year terms. Big Oil is always looking 20 to 40 years ahead. In this case, If LENR comes to market, they've paid to much for these sources. They'll have less value then originally anticipated.

    They'll sell it short now, but buy it back later at an even lower price. I've posted about this in the past & again just a couple months ago in more detail. This article just fleshes it in more, but pretty much what I had posted.
    All this Oil will still be exploited, but at lower prices in the Future for products, Plastics, Chemicals, Fertilizers & such.

    Note that Shale Oil costs 60 to 80 dollars a barrel to produce now. With LENR as the heat source it will drop to 15 to 20 & be much cleaner to boot.

    Also Note that BP needed to sell assets to cover the Golf Spill. I followed their progress. When they met their Goals, they didn't stop. They've kept selling them to the point it looks like their Gutting the Company.

    I can only imagine 2 Possible Reasons for this.
    1) Their Closing up Shop. No More BP...
    2) Their aware of LENR & are repositioning for it.

    As They have retained their Existing Oil Production Assets for the next 15 to 20 years, I Don't think their closing up shop. Everything they've disposed of is 20 years plus out. (For The Most Part)
    Similar to the other Big boys. Exxon, Shell, Etc..

    If this article is on target, a lot of unsuspecting who are of the Opinion that they are getting fantastic deals are going to take a loss.
    Also note that the Big boys are selling these short as in taking small loses, but they will more then compensate in the end when they buy them back for even less.

    I partly disagree with this article in 1 respect. I Don't think all the banks are yet aware. Just 2 months ago, CITI Bank was Railing about the Fantastic Oil Reserve Deals they were picking up or involved in. Over 100 BILLION Dollars Worth in just a few months. More then they normally deal with over several years. Can We Say Bank Bailout.

    No. Not all are aware. If they were this couldn't happen. It really amounts to what normally is called Insider Trading.
  • Guru on March 08 2013 said:
    I think so: Mr. Nyberg realistically polemised and analyse situation. Another question: What is standard behavior of thousands of big Hedge Funds when some rumours about war and end of war etc. is spreading ? They always participate in panic as much as possible with huge leverages. When some academic third party will publish heavy test of Hot-Cat or Yildiz or some Iranian (Keshe) MAGRAVs will flying over our heads, there will simply panic non plus ultra.

    Look what caused fall of oil from 143 USD to 37 USD in 2008: "a stunning 4 % lower consumption of oil".

    This time it will more relevant reason then 4%.
    U.S. consumption of heating oil alone is 24 % of refinery output. A few percentage down consumption of heating oil because of new technologies emerge and long position holders are finished forever.
    I am analysing Aerospace/Defense and Automotive sectors last 40 years - it will irrelevant those Rossi's blafs about "car industry will waiting at least 20 years" - these are simple clear blafs and Rossi will steamrolled by thousands Chinese "Shanzai" copycat companies which are today selling watches "ROLET". They will tomorrow selling "E-KAT".
  • Omega Z on March 08 2013 said:
    @ Guru

    U.S. only uses 6% for heating & that's seasonal. Nearly all in the Northeast. Even without LENR, I suspect these people will switch to Natural Gas considering their in the Middle of the Gas Fields more or less.

    China- It will take them a couple decades to fulfill their own needs. Considering how these will probably come to market, I doubt China would have that much of an advantage anyway & their advantage is already shrinking at the Economic level.

    This is because wages are only part of the economic picture. Otherwise why would a Company transfer jobs to the U.S. at $15 an hour when they only have to pay $2 an hour in China. Other costs trump wages.
  • broschultz on March 08 2013 said:
    This implies a degree of ineptness on the part of the US Government that even I have problems accepting. Why allow the construction of an environmentally flawed pipe line when oil is a short term need? Is the economy so bad that it needs the jobs or has corporate ownership of the government transcended political party ideology to the point of ignoring the entire environmental constituency?
  • walker on March 09 2013 said:
    Hi all

    In Reply to broschultz.
    Government is not a monculture though many for different reasons try to infer it is.

    President Obama made the Executive order that allows the initial LENR revolution to happen by licensing the Combined Heat and Power units which was a way that those lobys who want to prevent LENR from enertering the market would have used as a barrier to entry.

    The DOE old guard is anti LENR as it has funded billions on Hot Fusion research over last few decades that has not produced a single Watt of exess energy, but the former Assistant Secretary of Energy has joined the board of Rossi's Leonardo corp and the DOE Future energy research is considering funding Proffesor George Miley's LENR engine. http://futureenergy.ultralightstartups.com/campaign/detail/861
    You can vote for it if you want!

    The Navy does LENR research while lobyists try to shut it down using the mass media, they just made it secret to keep the lobyists out of the loop, it is a National Seccurity issue after because China is working on it, hense the hosts of NDA's flyround Rossi and NASA

    Any anti LENR loby and as has been mentioned their are many rich rich and powerful people who would pay millions to kill it off, but equaly there are others who see the profit and will spend millions to make such strategy fail, hense the large number of LENR projects being quietly supported. For all the Billions and even trillions that will be lost by the foolish and wealthy their are trillions upon trillions upon trillions to be made by the inteligent and wealthy, and that latter group always win.

    The estimate is that LENR will add between 15% to 24% to the world economy in its first seven years. It will be like the effects of the steam age and the computer and internet ages combined.
  • Rob Honders Sr on March 09 2013 said:
    Bros...

    "...corporate ownership of the government transcended political party ideology to the point of ignoring the entire environmental constituency."

    You hit the nail on the head. And ignoring not only the environmentalists but but also the US LENR researchers struggling without funding to bring to market the 'new fire'. Soon you'll be buying your LENR furnace at Walmart but made in China, causing more trade imbalance than we have ever seen before.

    But hang on... I just came back from 'Cold Fusion 101' at MIT and this is going to be interesting.
  • Omega Z on March 09 2013 said:
    broschultz

    LENR will be a long term transition. Oil will be needed for decades. Just a gradual reduction in quantity.

    LENR will 1st replace heat & Electric. There is still a Billion cars that will take near 2 decades to replace. 50 thousand maritime ships equal to another 300 million cars in Oil use.

    LENR would actually make Shale Oil & Tar Sands cheaper & cleaner to produce. There will be a market for several decades.

    This Oil reserve shuffle is just a Financial realignment. No one wants to be caught with Oil that cost them more then what it will be selling for in the future.

    My Personal Opinion.
    If LENR comes to market this year- There will be a temporary Financial shock. After that not much will change for at least a decade. I wouldn't be at all surprised to see Oil hit $150 a barrel again before things change enough to start gradually pushing the Price & Demand for Oil down.

    If Rossi produced 300K 10Kw cores a week, It wouldn't replace a single Existing Power Generating plant. Not even enough to cover the new demand. The Task is that big.

    In Fact- Unless China has slowed down Power Generating Construction, they were adding 1000 Megawatts per week. Converting 3/1 heat to electric would dictate the 300K cores per week..
  • Guru on March 09 2013 said:
    for Omega Z and other experts:

    it is not true, that only 6 % of refinery products is Heating Oil.

    Here is table where it is clearly visible:

    http://www.eia.gov/dnav/pet/pet_cons_psup_dc_nus_mbbl_a.htm
  • J.DOUGLAS on May 24 2013 said:
    CAMELS TO CAMELS IN THREE GENERATIONS?
  • Roger Bird on June 06 2013 said:
    I am a Rossi believer. But I have seen these graphs before, and I think that it is all wishful thinking, so far. It might help if the graphs were readable. But they are not. I am not convinced.
  • Galen Haugh on June 09 2013 said:
    Roger, the graphs are sufficient to see the trends but the main information is in the article, which it doesn't appear you've read.

    Being a geologist, I keep tabs on the oil and gas industry, and this author is correct--they are pursuing policies that are antathema to a world where demand continues unabated and supplies are consumed.

    Only LENR is sufficient to cause such a impact.
  • Galen Haugh on June 09 2013 said:
    Oh and Roger, all you have to do is click on the graphs and they enlarge--enough that anybody could read them. So they aren't, as you claim, "unreadable"

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