Mission & Name
US Foreign Policy (Dr. El-Najjar's Articles)
The Multi-Trillion Dollar Oil Market Swindle
By Leonard Brecken
Oil Price, Al-Jazeerah, CCUN, July
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
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.
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, itís clear that if the numbers are correct below, the perceived
oversupply wouldnít 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.
Furthermore, I donít even take into account whether oil
futures are being manipulated (much like FX, GOLD, LIBOR Ė all have been
either accused of or been caught in rigging scandals) along with every other
commodity as a result of oilís 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 hasnít 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
monthís production forecast as we predicted. Look for more of this to come.
By Leonard Brecken of Oilprice.com
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