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Rigging of the Oil and Gasoline Markets - What Will Obama do?

By Dian L. Chu | Sun, 23 December 2012 00:00 | 6

UBS paid $1.5 Billion for manipulating Libor, and Barclay`s already paid the piper for manipulating the Libor rate. Well, it is about time the CFTC get its act together, and start going after the culprits who rig the oil and gasoline markets costing consumers and businesses a mafia tax by paying prices much higher than the markets should be priced based upon supply and demand fundamentals in the consumption marketplace.

Gasoline Market

Today we had another build in Gasoline supplies, up 2.2 million barrels in the week for a fourth straight weekly build. We have had builds of 3.9 million barrels, 7.9 million barrels, 5.0 million barrels, and 2.2 million barrels totaling 19 million barrels build in gasoline inventories in a month.

Well, you say there must be strong demand numbers for gasoline. Nope, gasoline demand in the wholesale market is soft down 2.9 year-on-year, meaning gasoline sales this month are weak as well!

US crude oil stocks 2

Now, what is happening to price? On November 28th 2012 RBOB Gasoline prices were 2.66 a gallon, and today after 19 million barrels of build, (i.e. we no longer have short supplies on hand, about average for this time of year, in fact), RBOB gasoline prices are 2.74 a gallon.

Ergo, we have 19 million barrels of build, weak demand year-on-year.  However, this month, consumers are set to pay a whopping 8 cents a gallon more for the base commodity, which eventually will work its way to the pump over the next few weeks!

US gasoline stocks

Consumers may think prices are going down.  Yeah, but they should be continually going down, and down a lot more if the gasoline market wasn`t rigged. If anything gasoline prices should have come down at least another 25 cents based upon the build in inventories.  Instead consumers will be paying 8 cents higher with these 19 million build in gasoline inventories --the fair market pricing system at work!

 In other words, there was so much supply on the market that wholesalers had to store it because there wasn`t enough demand to sell it to consumers.  Yet prices still go up for the base commodity. So instead of prices continuing to come down further, consumers will have to pay more for gasoline in the coming months, and they shouldn`t if the market wasn`t rigged by this “mafia tax”!

US gasoline demand

Libor Rates

So where is the CFTC, the Commodity Trading Futures Commission, who should monitor these price shenanigans? The same place all the regulatory authorities were when consumers were being robbed by paying higher Libor rates than the market should have dictated for all types of lending from credit cards to other types of loans.

UBS got caught and agreed to pay 1.5 billion in fines.  Will consumers ever get any of this money? Heck no!  These fines go straight to government coffers, the same government and regulatory bodies who looked the other way while consumers were being charged this mafia tax by big banks for years.

Remember, Timothy Geithner knew about phony Libor rates for years before anybody did anything about it. And they say Geithner is in line to be the next Fed chief.  Guess he makes for a good business as usual candidate since Ben Bernanke knew about inappropriate Libor rates for years as well.

These officials don`t care about consumers.  They just saw an opportunity to make some money by going after these firms on Libor, long after consumers have paid far more than 1.5 billion in higher interest payments. Moreover, Consumers don`t get any of the money back, the actual victims in the scam!

The regulatory and governmental bodies responsible for monitoring these unscrupulous practices are where they always are, sitting on the sidelines for years of damage to consumers pocketbooks, and then when they finally do something about it, it is years down the line, and these firms only pay a slap on the wrist “shakedown fine”, and governments keep all the proceeds while consumers get screwed again.

How about giving the money from fines back to the real victims of these scams like the consumers in the form of tax rebates? The government made a whole lot of money off of AIG, how about giving this money back to taxpayers in the form of tax rebates? It will never happen because governments and these regulatory bodies are just as corrupt as the firms doing what I call these “mafia taxes” in the gasoline and oil markets.

They only care about how they can make some money off these firms by conducting these pseudo shake down cases just so they can get some money for their own little fiefdoms!

It would sure be nice if Obama could actually care about consumers and get somebody in the CFTC to represent consumer’s interests for a change, instead of these cozy relationships that currently exist in the CFTC for the last 10 years as the gasoline and oil markets have been rigged for decades!

By. Dian Chu

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  • Mairi on December 24 2012 said:
    Government is one gigantic 'mafia' enterprise. Everything is rigged. CAFR's are rigged, banking is rigged, consumption is rigged, labor numbers are rigged, even elections are rigged. There is no rule of law any more. When you have rats like Allen West head to D.C. on a promise to uphold his Oath of Office, then turn around and vote for expansion and extension of the Patriot Act, for NDAA, and for an increase in the debt ceiling, why are we surprised? Even the supposed "good guys" are corrupt.........
  • E.L. Beck on December 24 2012 said:
    It's synthetic inflation, and its causes and effects are working on food prices, too:

    http://www.scribd.com/doc/36691558/Synthetic-Inflation
  • Rogerppm on December 25 2012 said:
    This article has many accusations of a conspiracy, but no proof or evidence is presented. (What appears to be) inefficiency in the price of gasoline is not proof! This is a single metric over a relatively short time frame. Strident repetition of a conspiracy theory does not make it true! Please give us some hard evidence!
  • Martin horzempa on December 25 2012 said:
    Dysfunctional Commodities Markets are not hard to recognize. The evidence is obvious to any who would simply look at the price action. The oil market is a prime example of this. If the price of a commodity were to double or triple then the world would be flooded with oil. But this has't happened, supply is adequate and reserve is about the same as it was when oil was $35 bbl. One really can't expect anything different with oil interests on the supply side and long only index speculators and the financial entities that sponsor them on the demand side, with both having only  an interest in the increase of the price of oil. With legitimate commercial entities on the buy side overwhelmed it must follow that the price will rise as indeed it has from an average of ~$23 bbl before the financialization of commodities to the current price in excess of $100 bbl. Before the explosion of commodities index speculation the price of a barrel of oil tracked what Keynes called the natural price of the oil(basically the production cost) and since then the price of oil has absolutely nothing to do with it's cost. It really doesn't require a degree in economics to understand that the commodities markets are dysfunctional, it just takes a little logic. Regardless of all the experts explaining why housing market was not overheating, irrespective all the AAA ratings furnished by the experts at the rating agencies, inspite of all the studies commissioned by the bankers on Wall Street the housing market collapsed causing the biggest recession since the 1930's.
    When it walks like a duck. Citing multiple studies that attempt to disprove logic is reminiscent of the quants explaining how they could turn non performing subprime mortgages into AAA investments by separating them into tranches. When an expert says that the commodities markets are not effected by speculation when non-commercial entities(speculators) represent 70% to 80%of the open interest he really hurts his own credibility. By my calculations The cost of this speculation in the oil futures market has cost the world in excess of $9 Trillion dollars.
    The spreadsheet is here:
    http://www.rbobgambit.org/Oil_Speculation_Premium.php
      The President should follow his words with action and execute the RBOB GAMBIT and use an Executive Order to force the CFTC to promulgate the rules stipulated by the Dodd-Frank Act. Read more at: www.rbobgambit.org .
  • Paul D. Bain on December 27 2012 said:
    It is interesting that it does not occur to the author, Dian Chu, that, these days, the primary determinant of oil's price is not the *oil* supply but the M2 and M3 *money* supply (in the USA). Very, very interesting. Perhaps Dian Chu should read ZeroHedge.com more often.

    -- Paul D. Bain
    PaulBain@PObox.com
  • Paul Krauss on January 15 2013 said:
    It is convincing for me what Dian Chu says in his 11 January 2013 writing. If the banks invest half a billion
    dollar to buy oil, that will effect the price more than
    supply/demand or the M2 and M3 money supplies.

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