ON THE SPONTANEOUS RENEWAL OF OIL AND GAS FIELDS

[CrackSmokeRepublican]

Some Abiotic debate...  


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ON THE SPONTANEOUS RENEWAL OF OIL AND GAS FIELDS

 

V. I. Sozansky, Dept. Marine Geology, National Academy of Sciences, Ukraine

J. F. Kenney, Gas Resources Corporation, U.S.A.
P. M. Chepil, Institute Naukanaftogas, Ukraine

 

          Oil and gas fields are dynamic systems undergoing constant depletion by diffusion, effusion, and chemical decomposition, and  constant renewal by  influx of new volumes of hydrocarbons.  Many oil and gas fields are recharging and effectively inexhaustible,  but at rates of recharging typically much smaller than the rate of oil and gas withdrawal by production.

          The erroneous notion that the Earth's supply of natural petroleum, both oil and gas, is becoming depleted and will soon be exhausted, has recently been widely asserted.  These assertions have often been promulgated in connection with equally erroneous claims about a factually non-existent phenomenon called "Peak Oil".  According to the purveyors of these insupportable claims, the world-wide supply of oil will be exhausted within 20 years, and that of natural gas within 50 years, after which petroleum exhaustions mankind will supposedly suffer energetic collapse and an accompanying collapse of civilization.

          These pessimistic ideas about the future of the petroleum industry are based upon a scientifically indefensible and discredited notion that oil originates from some miraculous (but still unspecified) spontaneous transformation of biological detritus in the thermodynamic regime of pressures and temperatures found in the near-surface crust of the Earth, - i.e., upon the notion of a "biological-origin-of-petroleum ["BOOP"].  The BOOP notion has been rejected by competent scientists since the end of the 19th century because it stands glaringly in violation of the most fundamental laws of nature.  The hydrocarbon molecules that comprise natural petroleum are highly reduced and of high chemical potentials.  Biological molecules are oxidized and of low chemical potentials.  Crude oil does not obtain from decayed fish, dead dinosaurs, putrified cabbage, plankton, or any biological matter.

          Because the notion of BOOP requires a very restricted quantity of natural petroleum within the Earth, there have been almost continuous alarms raised predicting imminent petroleum exhaustions, - none of which has ever come to pass (of course).  The American geologist Price (1947) observed that, approximately every five years since Drake drilled the first oil well in North America, some person has announced a dire prediction of an imminent exhaustion of oil resources.  The persons making such predictions have often been considered to be  "experts" possessing special information about petroleum resources and geology.  All have been believers in BOOP.

 In 1886, the American geologist C. A. Ashenbenner (Price, 1977) urged a strong conservation policy for the oil reserves in the U.S.A., because (as he predicted), the American oil fields would "soon be depleted" and were "nearing exhaustion".  In 1906, the American petroleum geologist D. T. Day, reported to the White House that oil reserves in the U.S.A. would be completely exhausted between 1935-1943.  In 1920, the chief geologist of the United States Geological Survey, D. White (Pratt, 1942), predicted that production of oil in the U.S.A. would "peak" within 3-5 years, and thereafter begin to decrease, and would be exhausted within 18 years.  White's predictions were supported by the American Association of Petroleum Geologists.

Thus has continued the ill-informed litany that "the human race will run out of petroleum soon."  Such predictions of an imminent exhaustion of oil and gas resources and of an inevitable energy crisis were loudly proclaimed during the Arab oil embargo in the 1970's.

The American geologist H. Hedberg (1971) called the 20th century the Age of Petroleum. He wrote that there have been the Stone Age, the Bronze Age, the Iron Age, and that future historians may look back to a current brief period of the development of the human race, 200-300 years at most, as the Age of Petroleum, a period when the human race was engrossed with the finding and destruction of one of the very minor constituents of the earth's crust –  a unique fluid called petroleum.  He asserted that reserves of oil on the globe are limited and soon would be depleted.  He supposed that in human history the Age of Petroleum will have been only a brief episode in  history.  Further, Hedbert claimed that, if Alexander of Macedonia or Julius Caesar had powered their armies with petroleum as do modern military machines, the world supply might have been used long ago, and if Columbus' Santa Maria had been an oil-powered motor ship, there might not be gasoline for our cars today.

 

Modern petroleum science recognizes that the hydrocarbon compounds of natural petroleum are generated spontaneously only at the very high pressures found in the deep crust or upper mantle of the Earth.  Natural petroleum is a primordial, abiotic fluid which has penetrated the upper parts of the crust from great depth, usually along deep faults.  Modern petroleum science thus provides a very different perspective of the future of the oil and gas industry.

          The world-wide reserves of oil and gas were analyzed by Lasaga & Holland (1971) from both the perspectives of BOOP and an abiotic origin of petroleum.  By their estimates, the maximum quantity of crude oil that could have been produced by all biological matter on Earth could be represented by a thin 2.5mm film uniformly covering the Earth's surface.  Their estimates of the quantity of crude oil that could be produced abiologically could be represented by a thick 10km (!) layer uniformly covering the surface of the Earth.  This difference estimates that abiotic petroleum must be at least 8 million times greater than could ever be expected from BOOP.  Thus modern petroleum science predicts, even by the early estimates of Lasaga & Holland, that there exist tremendous quantities of petroleum, sufficient for the needs of humanity for thousands of years.

 

The study of oil and gas fields shows that most oil and gas reservoirs are recharging systems.  In many regions data have been obtained which establish that oil and gas constantly are being replenished to producing fields.

The scientific problem of replenishment of oil and gas reserves was first addressed by Russian petroleum scientist V. A. Sokolov, who studied extensively the problem of the diffusion and micro-filtration of hydrocarbons through rocks.   Sokolov came to the conclusion that any gas or oil field, irrespectively of its size, will be destroyed by diffusion and effusion within 200 million years without an influx of hydrocarbons from greater depth.

The subject of the influx of hydrocarbons into oil and gas fields was first raised by the geologist L. I. Baksakov and reported at the 3rd World Petroleum Congress, Bucharest, 1907.  Baksakov reported that more oil had been produced from the Middle Miocene rocks of Starogroznenskoye field than the volume and porosity of these rocks could contain.  He concluded that oil from greater depth fills up the Middle Miocene reservoirs.  Influxes of oil were  ascertained also in other fields of the Grosnett Petroleum Corporation.  Reserves of some fields were observed to increase by 300% - 400% greater than originally estimated.  Recently, many shallow oil wells in Chechnya, which had been shut down for long periods because of military operations and which had been previously exhausted, have now been restored to production.

American geologists have known for a long time that the estimates of recoverable oil and gas in producing fields usually increase.  This phenomenon is called reserves growth.  Analysis of exploration and production data shows that, world-wide, hydrocarbons (both crude oil and natural gas) volumes added to reserves by reserve growth are much greater than the volumes of new field discoveries.

In the U.S.A., the unexpected increased production of oil from Eugene Island Block 330 has drawn particular attention.  This field was discovered in 1971 by the well Pennzoil 1.  Production from this field is from 25 Pliocene-Pleistocene sandstone reservoirs at depths ranging from 1290-3800 m.  In the early 1980's, the flow had dropped to 4,000 barrels of oil per day.  Then suddenly production increased to 13,000 barrels, and estimated reserves were increased from 60 to 400 million barrels.

The recharging of  dynamic reservoirs in the Gulf of Mexico has been studied by several institutions directed by R. Anderson of the Lamont Doherty Geophysical Observatory.  The investigations have established that the rate of increase in the volume of oil in the reservoirs of Eugene Block Island 330 is approximately equal to the rate of extraction.  Hydrocarbons migrate into the Eugene Block Island 330 field from geo-pressured zones along a large growth fault system in the Eugene Island area.

Recent studies of oil and gas fields in Ukraine have established that these reservoirs are also being recharged by inflow of hydrocarbons from great depth.  Measurements show that 2x109m3  of methane enter the giant Shebelinka gas field in the Dniepr-Donets depression every year.  In 2007, the Ukrainian State Commission responsible for the measurement of petroleum resources increased the official reserves of the Shebelinka field by 109m3 which have been attributed to an influx of deep gas.  The reserves of the Shebelinka field were initially estimated to be 4.3x1011m3 of methane.  This field has now produced already 6.0x1011m3 of gas.

   
 

 

 

 

 

 

 

 

 

 

 

 

 

 

         

 

 

 

                           Fig.1. Reduced average pressure vs. cumulative gas production

                                      for the Shebelinka field (after A.A.Barenbaum et all, 2005).

 

In Ukraine, the gas fields Proletarske, Bilousivka, Chornukhi whose total produced gas was 20.6x1012m3, were abandoned as exhausted fifteen years ago, along with several other similarly exhausted fields.  However, when tested recently, these fields now produce the same quantity of gas, at the same pressure and rate of production as when initially discovered.

          The pressure distribution within oil and gas deposits in formations at different depths can establish the deep origins of petroleum.  An example of such has been measured in the Rudovsko-Chervonozavdske gas-condensate field in the Dniepr-Donets basin.  The depths of the reservoirs in this field are all less than 2 km.  In the Tournaisian reservoir, the pressure gradient is 1.45, i.e., 45% higher than hydrostatic pressure.  In the higher section of the field in the Lower Visean formation, the pressure gradient is only 1.05-1.15.  In the still higher Upper Visean, the pressure gradient has fallen to 0.95-0.07.  Thus the distribution of pressure of pressure in that field indicates that gas enters the reservoirs from the depth from where it fills deep horizons in the first place.

          Substantial inflows of deep oil have been observed in big Ukrainian fields Hnidyntsi and Lelyaki, Dniepr-Donets depression.  From these fields three times more oil has been produced than estimated reserves.  The fields are continuing to be under the development.  In light of these facts, the following practices should be carried out in oil and gas fields.

-         Oil and gas fields form very quickly during the first dozens of years.

-         All "old" oil and gas fields  considered previously to be exhausted should be thoroughly investigated to ascertain the quantities of oil and gas that have accumulated since the fields were shut in.

-         The optimum balance between production and recharging should be determined in order to prolong the period of recovery between replenishments.

-         The scientific body of knowledge concerning the cycles of regeneration of oil and gas deposits should be increased and extended.

         

Созанский В.И. Исчерпаемость ресурсов нефти и газа с позиций

      органической и неорганической теорий нефтеобразования .В кн. Генезис

      углеводородных флюидов  и месторождений, М. ГЕОС, 2006, с. 112 – 117.

Соколов В.А., Геохимические методы поисков нефти.. В кн Общий курс          

      геофизических  методов разведки нефтяных и газовых месторождений.,

      М:. Гостоптехиздат, 1954, с. 406-453.

Соколов В.А., Миграция нефти и газа, М.: Изд-во АН СССР, 1956, 352 с.

Anderson R.N., Recovering dynamics Gulf of Mexico reserves and the U.S. energy Future, http:            //64/233/183/104?

Barenbaum A.A. et al. Intensification of Deep Hydrocarbon Inflow. Doklady Earth

       Sciences, 2006, v.406, № 1, pp. 12 – 14.
Cooper C., This Oil Field Grows Even as It`s Tapped. Wall Street Journal, April  
      16, 1999.

Сurliss W., The Mystery of Eugene Island. Science Frontiers, no 124, Jul.-Aug.

      1999.

Gautier D.I., Klett T.R., and B.S.Pierse. Global Significance of Reserve Growth.

        http:pubs.usgs.gov/of/2005/1355/508Klett05-1355,html.

Energy Information Administration Report DOE/EIA-0534(U.S. Department of

      Energy,   Washington, DC.1990).

Gautier D.I., Klett T.R., and B.S.Pierse. Global Significance of Reserve Growth.

        http:pubs.usgs.gov/of/2005/1355/508Klett05-1355,html.

Неdberg H.D. Petroleum and Progress in Geology. Geol. Soc. London Quart.    

      Journal. 1971. v. 127, n 1. pp. 3 – 16.
HollandD.S., Nunan W.E.,Lammein D.R.  and Woodhams R.L., Eugene Island
      Block 330 Field, Offshore Louisiana, Giant Oil and Gas Fields of Decade:
      1968-1978, AAPG Memoir 30, pp. 253 – 280.
Lasaga A.C. , Holland H.D. Primordial oil slick, Science, 1971, v. 174, no 40, pp.

      53 – 55.

Masters C.D., Root D.H.  Attanasi E.D., Resource Constraints in Petroleum    

      Production Potential, Science, v.253, 12 July 1991, p. 146 – 152.

Pratt W.E., Toward a philosophy of oil finding, AAPG Bull.1952, v.36, n. 12, pp.

      2231 – 2236.

Price P. Evolution of Geologic Thought in Prospecting for Oil and Natural Gas..

      AAPG Bull.1947, v.31, n. 4, pp. 673 – 697.

Sozansky V.I., Chepil P.M., Kenney J.F., On the Inexhaustibility of  World-Wide Oil and

      Gas Resources, 1-st International Conference, World Resources and Reserves and

      Advanced  Technologies, Abst. Moscow, VNIIGAZ, 2007, pp. 25 – 26.

http://www.gasresources.net/OnSpontanei ... lVasyl.htm

[CrackSmokeRepublican]

The Fraudulence of Claims of Spontaneous, Low-Pressure

Generation of Petroleum

 

          Of the lies told to try to defend the childish notion of a "Biological-Origin-of-Petroleum" [BOOP], none are more egregious or more blatant than the claims that "the (spontaneous) generation of oil from organic matter at low pressures has been demonstrated in the laboratory."  All such claims are entirely fraudulent, without a single exception.  There has never been observed a spontaneous generation of natural petroleum (crude oil) from biological matter at low pressures in any laboratory, anywhere, ever.

          Typically, these lies are pronounced without even a pretense of offering any demonstration, or legitimate evidence,  of such extraordinary assertions.  Indeed, anyone hearing or reading such claims should immediately demand evidence of such.

 

          There have been published from time to time articles claiming to report demonstration of a "creation" of oil from biological detritus in a laboratory.  None such  articles have ever been published in the Journal of Chemical Physics or  the Physical Review, or any refereed journal of the American Physical Society; nor have any ever been published in the journal Physical Chemistry, or any journal of the American Chemical Society.  This absence of publication in serious scientific journals is relevant and important, for the spontaneous generation of oil is a chemical process that involves fundamentally the physical discipline of chemical thermodynamic stability theory.  Such process does not involve the texture of rocks, or the color of rocks, or any quality of rocks; it is not a geology problem.

          The few articles  claiming to report a spontaneous generation of oil in a laboratory at low pressure have been printed  in second- or  third-rate journals of very modest scientific standing,  which typically include in their titles Geo-this, or Geo-that.  The personnel of Gas Resources Corporation have examined every such article that has been brought to their attention during the past two decades.  Not one such article has withstood scientific scrutiny.  All have been determined to be fraudulent.

 

          Such articles claiming to report a spontaneous generation of oil at low pressures from biological matter have all fallen into one of three general categories.  These fraudulent claims of these three categories can be described as follows:

 

(1)             "We heated up a rock in the laboratory and saw oil come out of it.  Therefore, we have demonstrated the spontaneous generation of petroleum from organic matter.

 

(2)             "We simmered and bubbled some organic slop over a low heat for so and so many hours (or months), and afterwards we had some goop; and, Gee! it really looked like (or felt like, or smelled like) oil."

 

(3)             "We vaporized this-or-that biological material, and forced it through a heated reaction vessel in the presence of such-and-so rocks, and then removed it quickly from the reaction vessel, and, Lo! and Behold! we detected petroleum compounds!"

 

One ought to note at once that none of these reported laboratory "experiments" would be accepted as a Junior High School "science project" in any self-respecting school district anywhere.  Each of these categories of fraudulent claims is discussed below.

 

1.     The assertions that "we heated up a rock and oil came out of it"

These  should be recognized from the outset as spurious because no specification is given  of the reagents involved.  The claimants assert that they somehow induce a chemical reaction (or set of reactions) that produce hydrocarbon compounds heavier than methane, e.g., propane, octane,  diesel oil, etc. - via reactions of the form

 

uxX+uyY+uz  Z→u3C3H8+u8C8H18+u14C14H30+....

 

However, the proclaimers of such reactions  never tell anyone what their reagents X, Y and Z might be.  And, of course, whatever reactions they might claim to occur proceed inside their rocks, where such conveniently cannot be observed.

          Truly,  no chemical reactions that might produce petroleum compounds heavier than methane occur inside the rock when heated.  Whenever petroleum compounds heavier than methane emanate from a rock after heating, the phenomenon observed is simply that of a fluid being driven out of a rock matrix by the pressure induced by the difference in the isobaric coefficients of thermal expansion of the rock and the fluid.  When the rock and the fluid are heated,  the increased pressure developed in the fluid drives it toward any region of lower pressure, - i.e., out of the rock.  This process is exactly that used by petroleum engineers to extract petroleum from the rocks called "oil-shale," often called "retorting."

          In short, whatever petroleum might be observed emanating from a rock upon heating has been inside the pore spaces and fissures of the rock all along.  The effect of heating is simply to cause the fluid to move out of the rock, a phenomenon called often thermally-induced outgassing.

          In none of the reports claiming to have observed petroleum hydrocarbons coming out of rocks after heating have the compounds that were initially inside those rocks been specified.  Quite simply, they were the same ones observed coming out of it.

 

2.      The assertions that "we simmered some slop for weeks, and afterwards Gee!, it really looked (or felt, or smelled) like oil."

These assertions hardly deserve even momentary consideration. As with those of Category 1, the persons who make this type of claim never specify the identity of their reagents with which they start.  Furthermore, they don't even try to identify the product compounds of whatever chemical reactions they might fantasize had occurred. " Gee!  This looks like, or feels like, oil," suffices for these fellows.

          Such was the 18th-century "look-and-feel" science, and was the best one could do in that century.  Indeed, the great Russian scientist Mikhailo Lomonosov first hypothesized in 1751 that natural petroleum (crude oil, or "rock oil") originated from biological detritus because it felt and smelled similar to whale or seal oil, and was similarly combustible.  However, although such hypothetical reasoning could be accepted in the 18th century, in absence of knowledge of atomic physics, chemistry, and thermodynamics, such is utterly unacceptable in the 20th and 21st centuries.

          Any proper scientific investigation that involves any chemical transformation must specify both the reagents and the products, and their relative stoichiometric abundances.  The report of such investigation should give also the stereographic structures and chemical potentials (molar Gibbs free enthalpies of formation) of both the reagents and products, unless such data are previously known.  Also must be specified the energy balance for the entire experimental process, - i.e., the total amount of energy put into the experiment, and the total amount extracted from or rejected by it.  That articles are occasionally published in ostensibly scientific journals promulgating such assertions as discussed here is a sad commentary on the dysfunctional nature of scientific reviewing and editorial policy.

 

3.  The assertions, "we vaporized this-or-that biological material, and forced it through a heated reaction vessel in the presence of such-and-so rocks, and then removed it quickly from the reaction vessel, and Lo! and Behold!,  we detected petroleum compounds!"

These assertions differ from those of the first two categories to the extent that they often do specify the reagents and hydrocarbon products involved!  Nonetheless, these assertions and the processes that such involve are as fraudulent as any of the first two categories for what they are claimed to report:  a spontaneous generation of petroleum compounds from biological detritus in   conditions of the environment of the near-surface crust of the Earth.  What this category of assertions reports is factually nothing but sloppily performed, inefficient variants of the Fischer-Tropsch process.

The Fischer-Tropsch synthesis is a driven process, not a spontaneous one.   The Fischer-Tropsch synthesis is a well-known industrial process which produces hydrocarbon compounds from (typically) CO and water vapor, in the presence of certain common elements or minerals, such as Fe, Mo, Si02, which serve as catalysts and which determine the specific hydrocarbon compounds produced.  The hydrocarbon compounds produced in the Fischer-Tropsch synthesis are only intermediate products that must be removed quickly from the high-temperature reaction chamber and quenched to a much lower temperature in order to prevent the hydrocarbon compounds from decomposing.

The Fischer-Tropsch process is a highly-regulated, industrial process.  Such process is not mimicked in the natural world, no more than are the processes to produce, say, nylon or polyurethane.  Furthermore, to synthesize hydrocarbon compounds from CO and water vapor, the Fischer-Tropsch process requires the input of energy considerably greater than the energy recoverable from the hydrocarbons produced.  The Fischer-Tropsch process cannot be considered to demonstrate a spontaneous generation of hydrocarbon compounds by any measure.

 

Diamonds are recognized as the high-pressure phase of elemental carbon.  Diamonds are generated spontaneously at pressures greater than approximately 30 kbar, which are found in the lower crust and upper mantle of the Earth, - similarly as the petroleum compounds heavier than the lightest, methane, ethane, etc.  However, diamonds can be produced at low pressure in a laboratory by use of an acetylene plasma.  Nonetheless, by no stretch of logic can the laboratory production of diamonds using the acetylene plasma process be claimed to demonstrate a spontaneous generation of diamonds in the low pressure regime of the near-surface crust of the Earth.  Likewise, by no distortion of logic can the synthesis of heavy hydrocarbon compounds by the laboratory (or industrial) Fischer-Tropsch process be considered a demonstration of a spontaneous generation of petroleum compounds in the low pressure regime.

The Fisher-Tropsch process is no more relevant to the origin of natural petroleum than is the acetylene plasma process to the origin of natural diamonds.  The hydrocarbon compounds in natural petroleum (with their characteristic Boltzmann-Planck type distribution) are the high-pressure equilibrium polymorphs of the hydrogen-carbon system, as methane is its low-pressure equilibrium polymorph, similarly as diamond is the high-pressure equilibrium polymorph of the elemental carbon system, and graphite its low-pressure polymorph.

 

A final note to the reader:  Should any reader hear (or see written) an assertion that a spontaneous generation of natural petroleum has been observed at low pressure in a laboratory, the reader should promptly demand proof of such assertion:  a citation to an article in a referred scientific journal; or, better, a copy of such article; or a laboratory report.  Please send a copy of such article, or citation, or laboratory report to http://www.gasresources.net/EssayforWeb ... pounds.htm

[CrackSmokeRepublican]

Hydrocarbons Deep Within Earth: New Computational Study Reveals How

ScienceDaily (Apr. 17, 2011) — A new computational study published in the Proceedings of the National Academy of Sciences reveals how hydrocarbons may be formed from methane in deep Earth at extreme pressures and temperatures.

The thermodynamic and kinetic properties of hydrocarbons at high pressures and temperatures are important for understanding carbon reservoirs and fluxes in Earth.

The work provides a basis for understanding experiments that demonstrated polymerization of methane to form high hydrocarbons and earlier methane forming reactions under pressure.

Hydrocarbons (molecules composed of the elements hydrogen and carbon) are the main building block of crude oil and natural gas. Hydrocarbons contribute to the global carbon cycle (one of the most important cycles of Earth that allows for carbon to be recycled and reused throughout the biosphere and all of its organisms).

The team includes colleagues at UC Davis, Lawrence Livermore National Laboratory and Shell Projects & Technology. One of the researchers, UC Davis Professor Giulia Galli, is the co-chair of the Deep Carbon Observatory's Physics and Chemistry of Deep Carbon Directorate and former LLNL researcher.

Geologists and geochemists believe that nearly all (more than 99 percent) of the hydrocarbons in commercially produced crude oil and natural gas are formed by the decomposition of the remains of living organisms, which were buried under layers of sediments in Earth's crust, a region approximately 5-10 miles below Earth's surface.

But hydrocarbons of purely chemical deep crustal or mantle origin (abiogenic) could occur in some geologic settings, such as rifts or subduction zones said Galli, a senior author on the study.

"Our simulation study shows that methane molecules fuse to form larger hydrocarbon molecules when exposed to the very high temperatures and pressures of the Earth's upper mantle," Galli said. "We don't say that higher hydrocarbons actually occur under the realistic 'dirty' Earth mantle conditions, but we say that the pressures and temperatures alone are right for it to happen.

Galli and colleagues used the Mako computer cluster in Berkeley and computers at Lawrence Livermore to simulate the behavior of carbon and hydrogen atoms at the enormous pressures and temperatures found 40 to 95 miles deep inside Earth. They used sophisticated techniques based on first principles and the computer software system Qbox, developed at UC Davis.

They found that hydrocarbons with multiple carbon atoms can form from methane, (a molecule with only one carbon and four hydrogen atoms) at temperatures greater than 1,500 K (2,240 degrees Fahrenheit) and pressures 50,000 times those at Earth's surface (conditions found about 70 miles below the surface).

"In the simulation, interactions with metal or carbon surfaces allowed the process to occur faster -- they act as 'catalysts,' " said UC Davis' Leonardo Spanu, the first author of the paper.

The research does not address whether hydrocarbons formed deep in Earth could migrate closer to the surface and contribute to oil or gas deposits. However, the study points to possible microscopic mechanisms of hydrocarbon formation under very high temperatures and pressures.

Galli's co-authors on the paper are Spanu; Davide Donadio at the Max Planck Institute in Meinz, Germany; Detlef Hohl at Shell Global Solutions, Houston; and Eric Schwegler of Lawrence Livermore National Laboratory.
Email or share this story:

http://www.sciencedaily.com/releases/20 ... 104540.htm

[Christopher Marlowe]

There appears to be a longstanding debate between Michael Ruppert, who takes the peak oil view, and Dave McGowan, who argues the Abiotic side.  McGowan offers a very convincing argument here:

Stalin And Abiotic Oil
(Or How Ruppert's 'Peak Oil' Pile is Gaining Tonnage)
By Dave McGowan <dave@davesweb.cnchost.com>
http://educate-yourself.org/cn/davemcgowanstalinandabioticoil05mar05.shtml
March 5, 2005
Original Title
Stalin And Abiotic Oil
This story really begins in 1946, just after the close of World War II, which had illustrated quite effectively that oil was integral to waging modern, mechanized warfare. Stalin, recognizing the importance of oil, and recognizing also that the Soviet Union would have to be self sufficient, launched a massive scientific undertaking that has been compared, in its scale, to the Manhattan Project. The goal of the Soviet project was to study every aspect of petroleum, including how it is created, how reserves are generated, and how to best pursue petroleum exploration and extraction.

The challenge was taken up by a wide range of scientific disciplines, with hundreds of the top professionals in their fields contributing to the body of scientific research. By 1951, what has been called the Modern Russian-Ukrainian Theory of Deep, Abiotic Petroleum Origins was born. A healthy amount of scientific debate followed for the next couple of decades, during which time the theory, initially formulated by geologists, based on observational data, was validated through the rigorous quantitative work of chemists, physicists and thermodynamicists. For the last couple of decades, the theory has been accepted as established fact by virtually the entire scientific community of the (former) Soviet Union. It is backed up by literally thousands of published studies in prestigious, peer-reviewed scientific journals.

For over fifty years, Russian and Ukrainian scientists have added to this body of research and refined the Russian-Ukrainian theories. And for over fifty years, not a word of it has been published in the English language (except for a fairly recent, bastardized version published by astronomer Thomas Gold, who somehow forgot to credit the hundreds of scientists whose research he stole and then misrepresented).

This is not, by the way, just a theoretical model that the Russians and Ukrainians have established; the theories were put to practical use, resulting in the transformation of the Soviet Union - once regarded as having limited prospects, at best, for successful petroleum exploration - into a world-class petroleum producing, and exporting, nation.

J.F. Kenney spent some 15 years studying under some of the Russian and Ukrainian scientists who were key contributors to the modern petroleum theory. When Kenney speaks about petroleum origins, he is not speaking as some renegade scientist with a radical new theory; he is speaking to give voice to an entire community of scientists whose work has never been acknowledged in the West. Kenney writes passionately about that neglected body of research:

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not new or recent. This theory was first enunciated by Professor Nikolai Kudryavtsev in 1951, almost a half century ago, (Kudryavtsev 1951) and has undergone extensive development, refinement, and application since its introduction. There have been more than four thousand articles published in the Soviet scientific journals, and many books, dealing with the modern theory. This writer is presently co-authoring a book upon the subject of the development and applications of the modern theory of petroleum for which the bibliography requires more than thirty pages.

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not the work of any one single man -- nor of a few men. The modern theory was developed by hundreds of scientists in the (now former) U.S.S.R., including many of the finest geologists, geochemists, geophysicists, and thermodynamicists of that country. There have now been more than two generations of geologists, geophysicists, chemists, and other scientists in the U.S.S.R. who have worked upon and contributed to the development of the modern theory. (Kropotkin 1956; Anisimov, Vasilyev et al. 1959; Kudryavtsev 1959; Porfir'yev 1959; Kudryavtsev 1963; Raznitsyn 1963; Krayushkin 1965; Markevich 1966; Dolenko 1968; Dolenko 1971; Linetskii 1974; Letnikov, Karpov et al. 1977; Porfir'yev and Klochko 1981; Krayushkin 1984)

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not untested or speculative. On the contrary, the modern theory was severely challenged by many traditionally-minded geologists at the time of its introduction; and during the first decade thenafter, the modern theory was thoroughly examined, extensively reviewed, powerfully debated, and rigorously tested. Every year following 1951, there were important scientific conferences organized in the U.S.S.R. to debate and evaluate the modern theory, its development, and its predictions. The All-Union conferences in petroleum and petroleum geology in the years 1952-1964/5 dealt particularly with this subject. (During the period when the modern theory was being subjected to extensive critical challenge and testing, a number of the men pointed out that there had never been any similar critical review or testing of the traditional hypothesis that petroleum might somehow have evolved spontaneously from biological detritus.)

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not a vague, qualitative hypothesis, but stands as a rigorous analytic theory within the mainstream of the modern physical sciences. In this respect, the modern theory differs fundamentally not only from the previous hypothesis of a biological origin of petroleum but also from all traditional geological hypotheses. Since the nineteenth century, knowledgeable physicists, chemists, thermodynamicists, and chemical engineers have regarded with grave reservations (if not outright disdain) the suggestion that highly reduced hydrocarbon molecules of high free enthalpy (the constituents of crude oil) might somehow evolve spontaneously from highly oxidized biogenic molecules of low free enthalpy. Beginning in 1964, Soviet scientists carried out extensive theoretical statistical thermodynamic analysis which established explicitly that the hypothesis of evolution of hydrocarbon molecules (except methane) from biogenic ones in the temperature and pressure regime of the Earth's near-surface crust was glaringly in violation of the second law of thermodynamics.

They also determined that the evolution of reduced hydrocarbon molecules requires pressures of magnitudes encountered at depths equal to such of the mantle of the Earth. During the second phase of its development, the modern theory of petroleum was entirely recast from a qualitative argument based upon a synthesis of many qualitative facts into a quantitative argument based upon the analytical arguments of quantum statistical mechanics and thermodynamic stability theory. (Chekaliuk 1967; Boiko 1968; Chekaliuk 1971; Chekaliuk and Kenney 1991; Kenney 1995) With the transformation of the modern theory from a synthetic geology theory arguing by persuasion into an analytical physical theory arguing by compulsion, petroleum geology entered the mainstream of modern science.

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not controversial nor presently a matter of academic debate. The period of debate about this extensive body of knowledge has been over for approximately two decades (Simakov 1986). The modern theory is presently applied extensively throughout the former U.S.S.R. as the guiding perspective for petroleum exploration and development projects. There are presently more than 80 oil and gas fields in the Caspian district alone which were explored and developed by applying the perspective of the modern theory and which produce from the crystalline basement rock. (Krayushkin, Chebanenko et al. 1994) Similarly, such exploration in the western Siberia cratonic-rift sedimentary basin has developed 90 petroleum fields of which 80 produce either partly or entirely from the crystalline basement. The exploration and discoveries of the 11 major and 1 giant fields on the northern flank of the Dneiper-Donets basin have already been noted. There are presently deep drilling exploration projects under way in Azerbaijan, Tatarstan, and Asian Siberia directed to testing potential oil and gas reservoirs in the crystalline basement.

http://www.gasresources.net/index.htm

It appears that, unbeknownst to Westerners, there have actually been, for quite some time now, two competing theories concerning the origins of petroleum. One theory claims that oil is an organic 'fossil fuel' deposited in finite quantities near the planet's surface. The other theory claims that oil is continuously generated by natural processes in the Earth's magma. One theory is backed by a massive body of research representing fifty years of intense scientific inquiry. The other theory is an unproven relic of the eighteenth century. One theory anticipates deep oil reserves, refillable oil fields, migratory oil systems, deep sources of generation, and the spontaneous venting of gas and oil. The other theory has a difficult time explaining any such documented phenomena.

So which theory have we in the West, in our infinite wisdom, chosen to embrace? Why, the fundamentally absurd 'Fossil Fuel' theory, of course -- the same theory that the 'Peak Oil' doomsday warnings are based on.

I am sorry to report here, by the way, that in doing my homework, I never did come across any of that "hard science" documenting 'Peak Oil' that Mr. Strahl referred to. All the 'Peak Oil' literature that I found, on Ruppert's site and elsewhere, took for granted that petroleum is a non-renewable 'fossil fuel.' That theory is never questioned, nor is any effort made to validate it. It is simply taken to be an established scientific fact, which it quite obviously is not.

So what do Ruppert and his resident experts have to say about all of this? Dale Allen Pfeiffer, identified as the "FTW Contributing Editor for Energy," has written:
"There is some speculation that oil is abiotic in origin -- generally asserting that oil is formed from magma instead of an organic origin. These ideas are really groundless."

http://www.fromthewilderness.com
Here is a question that I have for both Mr. Ruppert and Mr. Pfeiffer: Do you consider it honest, responsible journalism to dismiss a fifty year body of multi-disciplinary scientific research, conducted by hundreds of the world's most gifted scientists, as "some speculation"?

Another of FTW's prognosticators, Colin Campbell, is described by Ruppert as "perhaps the world's foremost expert on oil." He was asked by Ruppert, in an interview,
"what would you say to the people who insist that oil is created from magma ...?"
Before we get to Campbell's answer, we should first take note of the tone of Ruppert's question. It is not really meant as a question at all, but rather as a statement, as in 'there is really nothing you can say that will satisfy these nutcases who insist on bringing up these loony theories.'

http://www.fromthewilderness.com

Campbell's response to the question was an interesting one:
"No one in the industry gives the slightest credence to these theories."
Why, one wonders, did Mr. Campbell choose to answer the question on behalf of the petroleum industry? And does it come as a surprise to anyone that the petroleum industry doesn't want to acknowledge abiotic theories of petroleum origins? Should we have instead expected something along these lines?:

http://www.davesweb.cnchost.com

The Center for an Informed America
NEWSLETTER #52
March 13, 2004
Cop v CIA (Center for an Informed America)

The Most Important Center for an Informed America Story in Two Years...

On February 29, 2004, I received the following e-mail message from Michael Ruppert of From the Wilderness:

I challenge you to an open, public debate on the subject of Peak Oil; any time, any place after March 13th 2004. I challenge you to bring scientific material, production data and academic references and citations for your conclusions like I have. I suggest a mutually acceptable panel of judges and I will put up $1,000 towards a purse to go to the winner of that debate. I expect you to do the same. And you made a dishonest and borderline libelous statement when you suggested that I am somehow pleased that these wars of aggression have taken place to secure oil. My message all along has been, "Not in my name!" Put your money where your mouth is. But first I suggest you do some homework. Ad hominem attacks using the word "bullshit", unsupported by scientific data are a sign of intellectual weakness (at best). I will throw more than 500 footnoted citations at you from unimpeachable sources. Be prepared to eat them or rebut them with something more than you have offered.

Wow! How does high noon sound?

Before I get started here, Mike, I need to ask you just one quick question: are you sure it was only a "borderline libelous statement"? Because I was really going for something more unambiguously libelous. I'll see if I can do better on this outing. Let me know how I do.

Several readers have written to me, incidentally, with a variation of the following question: "How can you say that Peak Oil is being promoted to sell war when all of the websites promoting the notion of Peak Oil are stridently anti-war?"

But of course they are. That, you see, is precisely the point. What I was trying to say is that the notion of 'Peak Oil' is being specifically marketed to the anti-war crowd -- because, as we all know, the pro-war crowd doesn't need to be fed any additional justifications for going to war; any of the old lies will do just fine. And I never said that the necessity of war was being overtly sold. What I said, if I remember correctly, is that it is being sold with a wink and a nudge.

The point that I was trying to make is that it would be difficult to imagine a better way to implicitly sell the necessity of war, even while appearing to stake out a position against war, than through the promotion of the concept of 'Peak Oil.' After September 11, 2001, someone famously said that if Osama bin Laden didn't exist, the US would have had to invent him. I think the same could be said for 'Peak Oil.'

I also need to mention here that those who are selling 'Peak Oil' hysteria aren't offering much in the way of alternatives, or solutions. Ruppert, for example, has stated flatly that "there is no effective replacement for what hydrocarbon energy provides today." (http://www.fromthewilderness.com/free/w ... tions.html) 

The message is quite clear: "we're running out of oil soon; there is no alternative; we're all screwed." And this isn't, mind you, just an energy problem; as Ruppert has correctly noted, "Almost every current human endeavor from transportation, to manufacturing, to plastics, and especially food production is inextricably intertwined with oil and natural gas supplies." (http://www.fromthewilderness.com/free/w ... pbell.html) 

If we run out of oil, in other words, our entire way of life will come crashing down. One of Ruppert's "unimpeachable sources," Colin Campbell, describes an apocalyptic future, just around the corner, that will be characterized by "war, starvation, economic recession, possibly even the extinction of homo sapiens." (http://www.fromthewilderness.com/free/w ... pbell.html)

My question is: if Ruppert is not selling the necessity of war, then exactly what is the message that he is sending to readers with such doomsday forecasts? At the end of a recent posting, Ruppert quotes dialogue from the 1975 Sidney Pollack film, Three Days of the Condor: (http://www.fromthewilderness.com/free/w ... _face.html)
Higgins: ...It's simple economics. Today it's oil, right? In 10 or 15 years - food, Plutonium. And maybe even sooner. Now what do you think the people are gonna want us to do then?
Turner: Ask them.
Higgins: Not now - then. Ask them when they're running out. Ask them when there's no heat in their homes and they're cold. Ask them when their engines stop. Ask them when people who've never known hunger start going hungry. Do you want to know something? They won't want us to ask them. They'll just want us to get it for them.
The message there seems pretty clear: once the people understand what is at stake, they will support whatever is deemed necessary to secure the world's oil supplies. And what is it that Ruppert is accomplishing with his persistent 'Peak Oil' postings? He is helping his readers to understand what is allegedly at stake.

Elsewhere on his site, Ruppert warns that "Different regions of the world peak in oil production at different times ... the OPEC nations of the Middle East peak last. Within a few years, they -- or whoever controls them -- will be in effective control of the world economy, and, in essence, of human civilization as a whole." (http://www.fromthewilderness.com/free/w ... pbell.html) 

Within a few years, the Middle East will be in control of all of human civilization?! Try as I might, I can't imagine any claim that would more effectively rally support for a U.S. takeover of the Middle East. The effect of such outlandish claims is to cast the present war as a war of necessity. Indeed, a BBC report posted on Ruppert's site explicitly endorses that notion: "It's not greed that's driving big oil companies - it's survival." (http://www.fromthewilderness.com/free/w ... r_bbc.html) 

On the very day that Ruppert's challenge arrived, I received another e-mail, from someone I previously identified - erroneously, it would appear - as a "prominent critic" of Michael Ruppert. In further correspondence, the writer, Jeff Strahl, explained that he is (a) not a critic of Ruppert in general, but rather a critic only of Ruppert's stance on certain aspects of the 9-11 story, and (b) not all that prominent. This is what Mr. Strahl had to say:
"I'm a participant in a relatively new website (http://911research.wtc7.net), which has done lots of work regarding the WTC and Pentagon side of the 9/11 events, especially the physical evidence which reveals the official story as a complete hoax. Under "talks" you'll find a slide show I've done (and will do again) in public on the Pentagon aspects. This is all simply to let you know I'm far from an apologist for the status quo. Nor am I an apologist for Mike Ruppert, with whom in fact I got into a donnybrook of a fight on public email lists over his denial of the relevancy of physical evidence and the fact that an article full of disinformation about the WTC collapse, written 9/13/01, was still on his website, unedited or corrected, two years later. He finally gave in and printed a (sort of) retraction.
That said, I have to take issue with your stance re Peak Oil, something you say you wish were true, but deny, not on the basis of any information, but on the basis that you seem to think it's too good to be true, and that it's all info presented by Ruppert, which you thus suspect since you suspect Ruppert. Matter of fact, Peak Oil was predicted by an oil geologist, King Hubbert, way back in the mid '60s, before Ruppert was even in college. It's been pursued since then by lots of people in the science know-how, including Dale Allen Pfeiffer, Richard Heinberg, Colin Campbell and Kenneth Deffeyes. The information is quite clear, global oil production has either peaked in the last couple of years or will do so in the next couple, as Hubbert predicted decades ago (He predicted Peak Oil in the US as happening in the early '70s, was laughed at, but his prediction came true right on schedule). The science here is quite hard, facts are available from lots of sources. Perhaps Hubbert was part of a long-planned disinfo campaign that was planned way back in the '60s, and all the others are part of that plot. I find it hard to believe that, and I am quite a skeptic."
As for the relevancy of physical evidence, it would appear that that is another bone that I have to pick with Mr. Ruppert. But I will save that for another time. For now, the issue is 'Peak Oil' (which, as you can see, I am continuing to enclose in quotation marks, which is, as regular readers know, how I identify things that don't actually exist).

For the record, I never said that Michael Ruppert was the only one presenting information about 'Peak Oil.' I said that he was the most prominent of those promoting the idea. I also never implied that Ruppert came up with the idea on his own. I am aware that the theory has a history. The issue here, however, is the sudden prominence that 'Peak Oil' has attained.

Lastly, let me say that, unlike you, Jeff, I am enough of a skeptic to believe that an ambitious, well-orchestrated disinformation campaign, possibly spanning generations, should never arbitrarily be ruled out. I am also enough of a skeptic to suspect that when a topic I have covered generates the volume of e-mail that my 'Peak Oil' musings have generated, then I must have managed to step into a pretty big pile of shit. What I did not realize, until I decided to take Mr. Ruppert's advice and "do some homework," was that it was a much bigger pile than I could have imagined.

I read through some, but certainly not all, of the alleged evidence that Ruppert has brought to the table concerning 'Peak Oil.' Since I have no interest in financially supporting his cause, I am not a paid subscriber and can therefore not access the 'members only' postings. But I doubt that I am missing much. The postings that I did read tended to be extremely redundant and, therefore, a little on the boring side.

Ruppert's arguments range from the vaguely compelling to the downright bizarre. One argument that pops up repeatedly is exemplified by this Ruppert-penned line: "One of the biggest signs of the reality of Peak Oil over the last two decades has been a continual pattern of merger-acquisition-downsizing throughout the industry."

Really? And is that pattern somehow unique to the petroleum industry? Or is it a pattern that has been followed by just about every major industry? Is the consolidation of the supermarket industry a sign of the reality of Peak Groceries? And with consolidation of the media industry, should we be concerned about Peak News? Or should we, perhaps, recognize that a pattern of monopoly control - characterized by mergers, acquisitions, and downsizing - represents nothing more than business as usual throughout the corporate world?

Another telling sign of 'Peak Oil,' according to Ruppert and Co., is sudden price hikes on gas and oil. Of course, that would be a somewhat more compelling argument if the oil cartels did not have a decades-long history of constantly feigning shortages to foist sudden price increases on consumers (usually just before peak travel periods). Contrary to the argument that appears on Ruppert's site, it is not need that is driving the oil industry, it is greed.

In what is undoubtedly the most bizarre posting that Ruppert offers in support of his theory, he ponders whether dialogue from an obscure 1965 television series indicates that the CIA knew as far back as the 1960s about the coming onset of 'Peak Oil.' (http://www.fromthewilderness.com/free/w ... t_man.html)

Even if that little factoid came from a more, uhmm, credible source, what would the significance be? Hasn't the conventional wisdom been, for many decades, that oil is a 'fossil fuel,' and therefore a finite, non-renewable resource? Since when has it been an intelligence community secret that a finite resource will someday run out?

A few readers raised that very issue in questioning my recent 'Peak Oil' rants. "Even if we are not now in the era of Peak Oil," the argument generally goes, "then surely we will be soon. After all, it is inevitable." And conventional wisdom dictates that it is, indeed, inevitable. But if this website has one overriding purpose, it is to question conventional wisdom whenever possible.

There is no shortage of authoritatively stated figures on the From the Wilderness website: billions of barrels of oil discovered to date; billions of barrels of oil produced to date; billions of barrels of oil in known reserves; billions of barrels of oil consumed annually. Yadda, yadda, yadda. My favorite figure is the one labeled, in one posting, "Yet-to-Find." That figure, 150 billion barrels (a relative pittance), is supposed to represent the precise volume of conventional oil in all the unknown number of oil fields of unknown size that haven't been discovered yet. Ruppert himself has written, with a cocksure swagger, that "there are no more significant quantities of oil to be discovered anywhere ..."(http://www.fromthewilderness.com/free/w ... _face.html) 

A rather bold statement, to say the least, considering that it would seem to be impossible for a mere mortal to know such a thing.

Ruppert's figures certainly paint a scary picture: rapid oil consumption + diminishing oil reserves + no new discoveries = no more oil. And sooner, rather than later. But is the 'Peak Oil' argument really valid? It seems logical -- a non-renewable resource consumed with a vengeance obviously can't last for long. The only flaw in the argument, I suppose, would be if oil wasn't really a 'fossil fuel,' and if it wasn't really a non-renewable resource.
"Conventional wisdom says the world's supply of oil is finite, and that it was deposited in horizontal reservoirs near the surface in a process that took millions of years." So said the Wall Street Journal in April 1999 (Christopher Cooper "Odd Reservoir Off Louisiana Prods Oil Experts to Seek a Deeper Meaning," Wall Street Journal, April 16, 1999). It therefore logically follows that conventional wisdom also says that oil will reach a production peak, and then ultimately run out. (http://www.oralchelation.com/faq/wsj4.htm)
As I said a few paragraphs ago, the purpose of this website is to question conventional wisdom -- by acquainting readers with stories that the media overlook, and with viewpoints that are not allowed in the mainstream. It was my understanding that From the Wilderness, and other 'alternative' websites, had a similar goal.

But is 'Peak Oil' really some suppressed, taboo topic? If it is, then why, as I sit here typing this, with today's (March 7, 2004) edition of the Los Angeles Times atop my desk, are the words "Running Out of Oil -- and Time" staring me in the face from the front page of the widely read Sunday Opinion section? The lengthy piece, penned by Paul Roberts, is replete with dire warnings of the coming crisis. Save for the fact that the words 'Peak Oil' are not routinely capitalized, it could easily pass for a From the Wilderness posting. 
(http://www.latimes.com/news/printeditio ... 7339.story) 

The Times also informed readers that Roberts has a new book due out in May, entitled The End of Oil: On the Edge of a Perilous New World. Scary stuff. Beating Robert's book to the stores will be Colin Campbell's The Coming Oil Crisis, due in April. Both titles will have to compete for shelf space with titles such as Richard Heinberg's The Party's Over: Oil, War and the Fate of Industrial Societies, published April of last year; David Goodstein's Out of Gas: The End of the Age of Oil, which just hit the shelves last month; and Kenneth Deffeyes' Hubbert's Peak: The Impending World Oil Shortage, published October 2001. The field is getting a bit crowded, but sales over at Amazon.com remain strong for most of the contenders.

The wholesale promotion of 'Peak Oil' seems to have taken off immediately after the September 11, 2001 'terrorist' attacks, and it is now really starting to pick up some steam.

The BBC covered the big story last April (http://www.fromthewilderness.com/free/w ... r_bbc.html).

CNN covered it in October (http://www.fromthewilderness.com/free/w ... k_oil.html).

The Guardian covered it in December (http://www.fromthewilderness.com/free/w ... arrel.html).

Now the Los Angeles Times has joined the chorus 

I guess the cat is pretty much out of the bag on this one. Everyone can cancel their subscriptions to From the Wilderness and pocket the $35 a year, since you can read the very same bullshit for free in the pages of the Los Angeles Times.

Interestingly enough, there is another story about oil that, unlike the 'Peak Oil' story, actually has been suppressed. It is a story that very few, if any, of my readers, or of Michael Ruppert's readers, are likely aware of. But before we get to that story, let's first briefly review what we all 'know' about oil.

As anyone who stayed awake during elementary school science class knows, oil comes from dinosaurs. I remember as a kid (calm down, folks; there will be no Brady Bunch references this week) seeing some kind of 'public service' spot explaining how dinosaurs "gave their all" so that we could one day have oil. It seemed a reasonable enough idea at the time -- from the perspective of an eight-year-old. But if, as an adult, you really stop to give it some thought, doesn't the idea seem a little, uhmm ... what's the word I'm looking for here? ... oh yeah, I remember now ... preposterous?

How could dinosaurs have possibly created the planet's vast oil fields? Did millions, or even billions, of them die at the very same time and at the very same place? Were there dinosaur Jonestowns on a grand scale occurring at locations all across the planet? And how did they all get buried so quickly? Because if they weren't buried right away, wouldn't they have just decomposed and/or been consumed by scavengers? And how much oil can you really squeeze from a pile of parched dinosaur skeletons?

Maybe there was some type of cataclysmic event that caused the sudden extinction of the dinosaurs and also buried them -- like the impact of an asteroid or a comet. But even so, you wouldn't think that all the dinosaurs would have been huddled together waiting to become oil fields. And besides, scientists are now backing away from the mass extinction theory (http://www.latimes.com/news/nationworld ... 4810.story). 

The Wall Street Journal article previously cited noted that it "would take a pretty big pile of dead dinosaurs to account for the estimated 660 billion barrels of oil in the [Middle East]." I don't know what the precise dinosaur-carcass-to-barrel-of-oil conversion rate is, but it does seem like it would take a hell of a lot of dead dinosaurs. Even if we generously allow that a single dinosaur could yield 5 barrels of oil (an absurd notion, but let's play along for now), more than 130 billion dinosaurs would have had to be simultaneously entombed in just one small region of the world. But were there really hundreds of billions of dinosaurs roaming the earth? If so, then one wonders why there is all this talk now of overpopulation and scarce resources, when all we are currently dealing with is a few billion humans populating the same earth.

And why the Middle East? Was that region some kind of Mecca for dinosaurs? Was it the climate, or the lack of water and vegetation, that drew them there? Of course, the region could have been much different in prehistoric times. Maybe it was like the Great Valley in the Land Before Time movies. Or maybe the dinosaurs had to cross the Middle East to get to the Great Valley, but they never made it, because they got bogged down in the desert and ultimately became (through, I'm guessing here, some alchemical process) cans of 10W-40 motor oil.

Another version of the 'fossil fuel' story holds that microscopic animal carcasses and other biological matter gathered on the world's sea floors, with that organic matter then being covered over with sediment over the course of millions of years. You would think, however, that any biological matter would decompose long before being covered over by sediment. But I guess not. And I guess there were no bottom-feeders in those days to clear the ocean floors of organic debris. Fair enough. But I still don't understand how those massive piles of biological debris, some consisting of hundreds of billions of tons of matter, could have just suddenly appeared, so that they could then sit, undisturbed, for millions of years as they were covered over with sediment. I can understand how biological detritus could accumulate over time, mixed in with the sediment, but that wouldn't really create the conditions for the generation of vast reservoirs of crude oil. So I guess I must be missing something here.

The notion that oil is a 'fossil fuel' was first proposed by Russian scholar Mikhailo Lomonosov in 1757. Lomonosov's rudimentary hypothesis, based on the limited base of scientific knowledge that existed at the time, and on his own simple observations, was that "Rock oil originates as tiny bodies of animals buried in the sediments which, under the influence of increased temperature and pressure acting during an unimaginably long period of time, transform into rock oil."

Two and a half centuries later, Lomonosov's theory remains as it was in 1757 -- an unproved, and almost entirely speculative, hypothesis. Returning once again to the Wall Street Journal, we find that, "Although the world has been drilling for oil for generations, little is known about the nature of the resource or the underground activities that led to its creation." A paragraph in the Encyclopedia Britannica concerning the origins of oil ends thusly: "In spite of the great amount of scientific research ... there remain many unresolved questions regarding its origins."

Does that not seem a little odd? We are talking here, after all, about a resource that, by all accounts, plays a crucial role in a vast array of human endeavors (by one published account, petroleum is a raw ingredient in some 70,000 manufactured products, including medicines, synthetic fabrics, fertilizers, paints and varnishes, acrylics, plastics, and cosmetics). By many accounts, the very survival of the human race is entirely dependent on the availability of petroleum. And yet we know almost nothing about this most life-sustaining of the earth's resources. And even though, by some shrill accounts, the well is about to run dry, no one seems to be overly concerned with understanding the nature and origins of so-called 'fossil fuels.' We are, rather, content with continuing to embrace an unproved 18th century theory that, if subjected to any sort of logical analysis, seems ludicrous.

On September 26, 1995, the New York Times ran an article headlined "Geochemist Says Oil Fields May Be Refilled Naturally." Penned by Malcolm W. Browne, the piece appeared on page C1.
" Could it be that many of the world's oil fields are refilling themselves at nearly the same rate they are being drained by an energy hungry world? A geochemist at the Woods Hole Oceanographic Institution in Massachusetts ... Dr. Jean K. Whelan ... infers that oil is moving in quite rapid spurts from great depths to reservoirs closer to the surface. Skeptics of Dr. Whelan's hypothesis ... say her explanation remains to be proved ... 

Discovered in 1972, an oil reservoir some 6,000 feet beneath Eugene Island 330 [not actually an island, but a patch of sea floor in the Gulf of Mexico] is one of the world's most productive oil sources ... Eugene Island 330 is remarkable for another reason: it's estimated reserves have declined much less than experts had predicted on the basis of its production rate. "It could be," Dr. Whelan said, "that at some sites, particularly where there is a lot of faulting in the rock, a reservoir from which oil is being pumped might be a steady-state system -- one that is replenished by deeper reserves as fast as oil is pumped out" ... 

The discovery that oil seepage is continuous and extensive from many ocean vents lying above fault zones has convinced many scientists that oil is making its way up through the faults from much deeper deposits ... A recent report from the Department of Energy Task Force on Strategic Energy Research and Development concluded from the Woods Hole project that "there new data and interpretations strongly suggest that the oil and gas in the Eugene Island field could be treated as a steady-state rather than a fixed resource." The report added, "Preliminary analysis also suggest that similar phenomena may be taking place in other producing areas, including the deep-water Gulf of Mexico and the Alaskan North Slope" ... There is much evidence that deep reserves of hydrocarbon fuels remain to be tapped."
This compelling article raised a number of questions, including: how did all those piles of dinosaur carcasses end up thousands of feet beneath the earth's surface? How do finite reservoirs of dinosaur goo become "steady-state" resources? And how does the fossil fuel theory explain the continuous, spontaneous venting of gas and oil?

The Eugene Island story was revisited by the media three-and-a-half years later, by the Wall Street Journal (Christopher Cooper "Odd Reservoir Off Louisiana Prods Oil Experts to Seek a Deeper Meaning," Wall Street Journal, April 16, 1999). (http://www.oralchelation.com/faq/wsj4.htm)
Something mysterious is going on at Eugene Island 330.
"Production at the oil field, deep in the Gulf of Mexico off the coast of Louisiana, was supposed to have declined years ago. And for a while. it behaved like any normal field: Following its 1973 discovery, Eugene Island 330's output peaked at about 15,000 barrels a day. By 1989, production had slowed to about 4,000 barrels a day. 

Then suddenly -- some say almost inexplicably -- Eugene Island's fortunes reversed. The field, operated by PennzEnergy Co., is now producing 13,000 barrels a day, and probable reserves have rocketed to more than 400 million barrels from 60 million. Stranger still, scientists studying the field say the crude coming out of the pipe is of a geological age quite different from the oil that gushed 10 years ago. 

All of which has led some scientists to a radical theory: Eugene Island is rapidly refilling itself, perhaps from some continuous source miles below the Earth's surface. That, they say, raises the tantalizing possibility that oil may not be the limited resource it is assumed to be. ... 

Jean Whelan, a geochemist and senior researcher from the Woods Hole Oceanographic Institution in Massachusetts ... says, "I believe there is a huge system of oil just migrating" deep underground. ... About 80 miles off the Louisiana coast, the underwater landscape surrounding Eugene Island is otherworldly, cut with deep fissures and faults that spontaneously belch gas and oil."
 
So now we are talking about a huge system of migrating dinosaur goo that is miles beneath the Earth's surface! Those dinosaurs were rather crafty, weren't they? Exactly three years later (to the day), the media once again paid a visit to the Gulf of Mexico. This time, it was Newsday that filed the report (Robert Cooke "Oil Field's Free Refill," Newsday, April 19, 2002). (http://csf.colorado.edu/forums/pkt/2002II/msg00071.html)
"Deep underwater, and deeper underground, scientists see surprising hints that gas and oil deposits can be replenished, filling up again, sometimes rapidly. 
Although it sounds too good to be true, increasing evidence from the Gulf of Mexico suggests that some old oil fields are being refilled by petroleum surging up from deep below, scientists report. That may mean that current estimates of oil and gas abundance are far too low. ..
. chemical oceanographer Mahlon "Chuck" Kennicutt [said] "They are refilling as we speak. But whether this is a worldwide phenomenon, we don't know" ... 
Kennicutt, a faculty member at Texas A&M University, said it is now clear that gas and oil are coming into the known reservoirs very rapidly in terms of geologic time. The inflow of new gas, and some oil, has been detectable in as little as three to 10 years. In the past, it was not suspected that oil fields can refill because it was assumed that oil was formed in place, or nearby, rather than far below. 
According to marine geologist Harry Roberts, at Louisiana State University ... "You have a very leaky fault system that does allow it (petroleum) to migrate in. It's directly connected to an oil and gas generating system at great depth." ...
"There already appears to be a large body of evidence consistent with ... oil and gas generation and migration on very short time scales in many areas globally" [Jean Whelan] wrote in the journal Sea Technology ... 
Analysis of the ancient oil that seems to be coming up from deep below in the Gulf of Mexico suggests that the flow of new oil "is coming from deeper, hotter [sediment] formations" and is not simply a lateral inflow from the old deposits that surround existing oil fields, [Whelan] said."
Now I'm really starting to get confused. Can someone please walk me through this? What exactly is an "oil and gas generating system"? And how does such a system generate oil "on very short time scales"? Is someone down there right now, even as I type these words, forklifting dinosaur carcasses into some gigantic cauldron to cook up a fresh batch of oil?

Desperate for answers to such perplexing questions, I turned for advice to Mr. Peak Oil himself, Michael Ruppert, and this is what I found: "oil ... is the result of climactic conditions that have existed at only one time in the earth's 4.5 billion year history." I'm guessing that that "one time" - that one golden window of opportunity to get just the right mix of dinosaur stew - isn't the present time, so it doesn't seem quite right, to me at least, that oil is being generated right now.

In June 2003, Geotimes paid a visit to the Gulf of Mexico ("Raining Hydrocarbons in the Gulf"), and the story grew yet more compelling. 
http://www.geotimes.org/june03/NN_gulf.html
"Below the Gulf of Mexico, hydrocarbons flow upward through an intricate network of conduits and reservoirs ... and this is all happening now, not millions and millions of years ago, says Larry Cathles, a chemical geologist at Cornell University. "We're dealing with this giant flow-through system where the hydrocarbons are generating now, moving through the overlying strata now, building the reservoirs now and spilling out into the ocean now," Cathles says. ...
Cathles and his team estimate that in a study area of about 9,600 square miles off the coast of Louisiana [including Eugene Island 330], source rocks a dozen kilometers [roughly seven miles] down have generated as much as 184 billion tons of oil and gas -- about 1,000 billion barrels of oil and gas equivalent. "That's 30 percent more than we humans have consumed over the entire petroleum era," Cathles say. "And that's just this one little postage stamp area; if this is going on worldwide, then there's a lot of hydrocarbons venting out."

Dry oil wells spontaneously refilling? Oil generation and migration systems? Massive oil reserves miles beneath the earth's surface? Spontaneous venting of enormous volumes of gas and oil? (Roberts noted that - and this isn't really going to please the environmentalists, but I'm just reporting the facts, ma'am - "natural seepage" in areas like the Gulf of Mexico "far exceeds anything that gets spilled" by the oil industry. And those natural emissions have been pumped into our oceans since long before there was an oil industry.)

The all too obvious question here is: how is any of that explained by a theory that holds that oil and gas are 'fossil fuels' created in finite quantities through a unique geological process that occurred millions of years ago?

Why do we insist on retaining an antiquated theory that is so obviously contradicted by readily observable phenomena? Is the advancement of the sciences not based on formulating a hypothesis, and then testing that hypothesis? And if the hypothesis fails to account for the available data, is it not customary to either modify that hypothesis or formulate a new hypothesis -- rather than, say, clinging to the same discredited hypothesis for 250 years?

In August 2002, the journal Proceedings of the National Academy of Sciences published a study authored by J.F. Kenney, V.A. Kutchenov, N.A. Bendeliani and V.A. Alekseev. The authors argued, quite compellingly, that oil is not created from organic compounds at the temperatures and pressures found close to the surface of the earth, but rather is created from inorganic compounds at the extreme temperatures and pressures present only near the core of the earth (http://www.gasresources.net/index.htm).

As Geotimes noted ("Inorganic Origin of Oil: Much Ado About Nothing?," Geotimes, November 2002), the journal "published the paper at the request of Academy member Howard Reiss, a chemical physicist at the University of California at Los Angeles. As per the PNAS guidelines for members communicating papers, Reiss obtained reviews of the paper from at least two referees from different institutions (not affiliated with the authors) and shepherded the report through revisions." (http://www.geotimes.org/nov02/NN_oil.html)

I mention that because I happened to read something that Michael Ruppert wrote recently that seems pertinent: "In real life, it is called 'the proof is in the pudding.' In scientific circles, it is called peer review, and it usually involves having your research published in a peer-reviewed journal. It is an often-frustrating process, but peer-reviewed articles ensure the validity of science." (http://www.fromthewilderness.com/free/w ... tions.html)

It would seem then that we can safely conclude that what Kenney, et. al. have presented is valid science, since it definitely was published in a peer-reviewed journal. And what that valid science says, quite clearly, is that petroleum is not by any stretch of the imagination a finite resource, or a 'fossil fuel,' but is in fact a resource that is continuously generated by natural processes deep within the planet.

Geotimes also noted that the research paper "examined thermodynamic arguments that say methane is the only organic hydrocarbon to exist within Earth's crust." Indeed, utilizing the laws of modern thermodynamics, the authors constructed a mathematical model that proves that oil can not form under the conditions dictated by the 'fossil fuel' theory.

I mention that because of something else I read on Ruppert's site. Listed as #5 of "Nine Critical Questions to Ask About Alternative Energy" is: "Most of the other questions in this list can be tied up into this one question: does the invention defy the Laws of Thermodynamics? If the answer is yes, then something is wrong." (http://www.fromthewilderness.com/free/w ... tions.html) 

Well then, Mr. Ruppert, I have some very bad news for you, because something definitely is wrong -- with your 'Peak Oil' theory. Because here we have a published study, subjected to peer review (thus assuring the "validity" of the study), that demonstrates, with mathematical certainty, that it is actually the 'fossil fuel' theory that defies the laws of thermodynamics. It appears then that if we follow Ruppert's Laws, we have to rule out fossil fuels as a viable alternative to petroleum.

Reaction to the publication of the Kenney study was swift. First to weigh in was Nature (Tom Clarke "Fossil Fuels Without the Fossils: Petroleum: Animal, Vegetable or Mineral?," Nature News Service, August 14, 2002).
"Petroleum - the archetypal fossil fuel - couldn't have formed from the remains of dead animals and plants, claim US and Russian researchers. They argue that petroleum originated from minerals at extreme temperatures and pressures. Other geochemists say that the work resurrects a scientific debate that is almost a fossil itself, and criticize the team's conclusions.
The team, led by J.F. Kenney of the Gas Resources Corporation in Houston, Texas, mimicked conditions more than 100 kilometres below the earth's surface by heating marble, iron oxide and water to around 1500° C and 50,000 times atmospheric pressure.
They produced traces of methane, the main constituent of natural gas, and octane, the hydrocarbon molecule that makes petrol. A mathematical model of the process suggests that, apart from methane, none of the ingredients of petroleum could form at depths less than 100 kilometres."
The geochemist community, and the petroleum industry, were both suitably outraged by the publication of the study. The usual parade of experts was trotted out, of course, but a funny thing happened: as much as they obviously wanted to, those experts were unable to deny the validity of the research. So they resorted to a very unusual tactic: they reluctantly acknowledged that oil can indeed be created from minerals, but they insisted that that inconvenient fact really has nothing to do with the oil that we use.


Showing that oil can also form without a biological origin does not disprove [the 'fossil fuel'] hypothesis. "It doesn't discredit anything," said a geochemist who asked not to be named. ... "
No one disputes that hydrocarbons can form this way," says Mark McCaffrey, a geochemist with Oil Tracers LLC, a petroleum-prospecting consultancy in Dallas, Texas. A tiny percentage of natural oil deposits are known to be non-biological, but this doesn't mean that petrol isn't a fossil fuel, he says. "
I don't know anyone in the petroleum community who really takes this prospect seriously," says Walter Michaelis, a geochemist at the University of Hamburg in Germany. "
So I guess the geochemist community is a petulant lot. They did "concede," however, that oil "that forms inorganically at the high temperatures and massive pressures close to the Earth's mantle layer could be forced upwards towards the surface by water, which is denser than oil. It can then be trapped by sedimentary rocks that are impermeable to oil."
What they were acknowledging, lest anyone misunderstand, is that the oil that we pump out of reservoirs near the surface of the earth, and the oil that is spontaneously and continuously generated deep within the earth, could very well be the same oil. But even so, they insist, that is certainly no reason to abandon, or even question, our perfectly ridiculous 'fossil fuel' theory.

Coverage by New Scientist of the 'controversial' journal publication largely mirrored the coverage by Nature (Jeff Hecht "You Can Squeeze Oil Out of a Stone," New Scientist, August 17, 2002).
"Oil doesn't come from dead plants and animals, but from plain old rock, a controversial new study claims. 
The heat and pressure a hundred kilometres underground produces hydrocarbons from inorganic carbon and water, says J.F. Kenney, who runs the Gas Resources Corporation, an oil exploration firm in Houston. He and three Russian colleagues believe all our oil is made this way, and untapped supplies are there for the taking.
Petroleum geologists already accept that some oil forms like this. "Nobody ever argued that there are no inorganic sources," says Mike Lewan of the US Geological Survey. But they take strong issue with Kenney's claim that petroleum can't form from organic matter in shallow rocks."
Geotimes chimed in as well, quoting Scott Imbus, an organic geochemist for Chevron Texaco Corp., who explained that the Kenney research is "an excellent and rigorous treatment of the theoretical and experimental aspects for abiotic hydrocarbon formation deep in the Earth. Unfortunately, it has little or nothing to do with the origins of commercial fossil fuel deposits."

What we have here, quite clearly, is a situation wherein the West's leading geochemists (read: shills for the petroleum industry) cannot impugn the validity of Kenney's unassailable mathematical model, and so they have, remarkably enough, adopted the unusual strategy of claiming that there is actually more than one way to produce oil. It can be created under extremely high temperatures and pressures, or it can be created under relatively low temperatures and pressures. It can be created organically, or it can be created inorganically. It can be created deep within the Earth, or it can be created near the surface of the Earth. You can make it with some rocks. Or you can make it in a box. You can make it here or there. You can make it anywhere.

While obviously an absurdly desperate attempt to salvage the 'fossil fuel' theory, the arguments being offered by the geochemist community actually serve to further undermine the notion that oil is an irreplaceable 'fossil fuel.' For if we are now to believe that petroleum can be created under a wide range of conditions (a temperature range, for example, of 75° C to 1500° C), does that not cast serious doubt on the claim that conditions favored the creation of oil just "one time in the earth's 4.5 billion year history"?

A more accurate review of Kenney's work appeared in The Economist ("The Argument Needs Oiling," The Economist, August 15, 2002).
" Millions of years ago, tiny animals and plants died. They settled at the bottom of the oceans. Over time, they were crushed beneath layers of sediment that built up above them and eventually turned into rock. The organic matter, now trapped hundreds of metres below the surface, started to change. Under the action of gentle heat and pressure, and in the absence of air, the biological debris turned into oil and gas. Or so the story goes. 
In 1951, however, a group of Soviet scientists led by Nikolai Kudryavtsev claimed that this theory of oil production was fiction. They suggested that hydrocarbons, the principal molecular constituents of oil, are generated deep within the earth from inorganic materials. Few people outside Russia listened. But one who did was J. F. Kenney, an American who today works for the Russian Academy of Sciences and is also chief executive of Gas Resources Corporation in Houston, Texas. He says it is nonsense to believe that oil derives from "squashed fish and putrefied cabbages." This is a brave claim to make when the overwhelming majority of petroleum geologists subscribe to the biological theory of origin. But Dr Kenney has evidence to support his argument. 
In this week's Proceedings of the National Academy of Sciences, he claims to establish that it is energetically impossible for alkanes, one of the main types of hydrocarbon molecule in crude oil, to evolve from biological precursors at the depths where reservoirs have typically been found and plundered. He has developed a mathematical model incorporating quantum mechanics, statistics and thermodynamics which predicts the behaviour of a hydrocarbon system. The complex mixture of straight-chain and branched alkane molecules found in crude oil could, according to his calculations, have come into existence only at extremely high temperatures and pressures-far higher than those found in the earth's crust, where the orthodox theory claims they are formed. 
To back up this idea, he has shown that a cocktail of alkanes (methane, hexane, octane and so on) similar to that in natural oil is produced when a mixture of calcium carbonate, water and iron oxide is heated to 1,500° C and crushed with the weight of 50,000 atmospheres. This experiment reproduces the conditions in the earth's upper mantle, 100 km below the surface, and so suggests that oil could be produced there from completely inorganic sources."
Kenney's theories, when discussed at all, are universally described as "new," "radical," and "controversial." In truth, however, Kenney's ideas are not new, nor original, nor radical. Though no one other than Kenney himself seems to want to talk about it, the arguments that he presented in the PNAS study are really just the tip of a very large iceberg of suppressed scientific research.

This story really begins in 1946, just after the close of World War II, which had illustrated quite effectively that oil was integral to waging modern, mechanized warfare. Stalin, recognizing the importance of oil, and recognizing also that the Soviet Union would have to be self sufficient, launched a massive scientific undertaking that has been compared, in its scale, to the Manhattan Project. The goal of the Soviet project was to study every aspect of petroleum, including how it is created, how reserves are generated, and how to best pursue petroleum exploration and extraction.

The challenge was taken up by a wide range of scientific disciplines, with hundreds of the top professionals in their fields contributing to the body of scientific research. By 1951, what has been called the Modern Russian-Ukrainian Theory of Deep, Abiotic Petroleum Origins was born. A healthy amount of scientific debate followed for the next couple of decades, during which time the theory, initially formulated by geologists, based on observational data, was validated through the rigorous quantitative work of chemists, physicists and thermodynamicists. For the last couple of decades, the theory has been accepted as established fact by virtually the entire scientific community of the (former) Soviet Union. It is backed up by literally thousands of published studies in prestigious, peer-reviewed scientific journals.

For over fifty years, Russian and Ukrainian scientists have added to this body of research and refined the Russian-Ukrainian theories. And for over fifty years, not a word of it has been published in the English language (except for a fairly recent, bastardized version published by astronomer Thomas Gold, who somehow forgot to credit the hundreds of scientists whose research he stole and then misrepresented).

This is not, by the way, just a theoretical model that the Russians and Ukrainians have established; the theories were put to practical use, resulting in the transformation of the Soviet Union - once regarded as having limited prospects, at best, for successful petroleum exploration - into a world-class petroleum producing, and exporting, nation.

J.F. Kenney spent some 15 years studying under some of the Russian and Ukrainian scientists who were key contributors to the modern petroleum theory. When Kenney speaks about petroleum origins, he is not speaking as some renegade scientist with a radical new theory; he is speaking to give voice to an entire community of scientists whose work has never been acknowledged in the West. Kenney writes passionately about that neglected body of research:
"The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not new or recent. This theory was first enunciated by Professor Nikolai Kudryavtsev in 1951, almost a half century ago, (Kudryavtsev 1951) and has undergone extensive development, refinement, and application since its introduction. There have been more than four thousand articles published in the Soviet scientific journals, and many books, dealing with the modern theory. This writer is presently co-authoring a book upon the subject of the development and applications of the modern theory of petroleum for which the bibliography requires more than thirty pages.

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not the work of any one single man -- nor of a few men. The modern theory was developed by hundreds of scientists in the (now former) U.S.S.R., including many of the finest geologists, geochemists, geophysicists, and thermodynamicists of that country. There have now been more than two generations of geologists, geophysicists, chemists, and other scientists in the U.S.S.R. who have worked upon and contributed to the development of the modern theory. (Kropotkin 1956; Anisimov, Vasilyev et al. 1959; Kudryavtsev 1959; Porfir'yev 1959; Kudryavtsev 1963; Raznitsyn 1963; Krayushkin 1965; Markevich 1966; Dolenko 1968; Dolenko 1971; Linetskii 1974; Letnikov, Karpov et al. 1977; Porfir'yev and Klochko 1981; Krayushkin 1984)

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not untested or speculative. On the contrary, the modern theory was severely challenged by many traditionally-minded geologists at the time of its introduction; and during the first decade thenafter, the modern theory was thoroughly examined, extensively reviewed, powerfully debated, and rigorously tested. Every year following 1951, there were important scientific conferences organized in the U.S.S.R. to debate and evaluate the modern theory, its development, and its predictions. The All-Union conferences in petroleum and petroleum geology in the years 1952-1964/5 dealt particularly with this subject. (During the period when the modern theory was being subjected to extensive critical challenge and testing, a number of the men pointed out that there had never been any similar critical review or testing of the traditional hypothesis that petroleum might somehow have evolved spontaneously from biological detritus.) 

The modern Russian-Ukrainian theory of deep, abiotic petroleum origins is not a vague, qualitative hypothesis, but stands as a rigorous analytic theory within the mainstream of the modern physical sciences. In this respect, the modern theory differs fundamentally not only from the previous hypothesis of a biological origin of petroleum but also from all traditional geological hypotheses. Since the nineteenth century, knowledgeable physicists, chemists, thermodynamicists, and chemical engineers have regarded with grave reservations (if not outright disdain) the suggestion that highly reduced hydrocarbon molecules of high free enthalpy (the constituents of crude oil) might somehow evolve spontaneously from highly oxidized biogenic molecules of low free enthalpy. Beginning in 1964, Soviet scientists carried out extensive theoretical statistical thermodynamic analysis which established explicitly that the hypothesis of evolution of hydrocarbon molecules (except methane) from biogenic ones in the temperature and pressure regime of the Earth's near-surface crust was glaringly in violation of the second law of thermodynamics. They also determined that the evolution of redu

[CrackSmokeRepublican]

Great post C.M. wish I had read it earlier. This part really captures it:

There is a close parallel here with the diamond industry. It is a relatively open secret that the diamond market is an artificial one, created by an illusion of scarcity actively cultivated by DeBeers, which has monopolized the diamond industry for generations. As Ernest Oppenheimer of DeBeers said, nearly a century ago, "Common sense tells us that the only way to increase the value of diamonds is to make them scarce -- that is, reduce production." And that is exactly what the company has done for decades now.

There are reportedly nearly one billion diamonds produced every year, and that is only a fraction of what could be produced. Diamonds are not, conventional wisdom to the contrary, a scarce resource, and they are therefore not intrinsically valuable. Without the market manipulation, experts estimate that the true value of diamonds would be roughly $30 per carat.

Interestingly enough, Soviet researchers have noted that diamonds are the result of the same processes that create petroleum: "Statistical thermodynamic analysis has established clearly that hydrocarbon molecules which comprise petroleum require very high pressures for their spontaneous formation, comparable to the pressures required for the same of diamond. In that sense, hydrocarbon molecules are the high-pressure polymorphs of the reduced carbon system as is diamond of elemental carbon." (Emmanuil B. Chekaliuk, 1968)

So what we appear to have here are two resources, both of which are created in abundance by natural geothermal processes, and both of which are marketed as scarce and valuable commodities, creating two industries awash in obscene profits.



Dave McGowan

[Christopher Marlowe]

Yes. The Diamonds/Crude Oil comparison has become one of my new talking points. This also explains the wars in the middle east. If crude oil is not scarce, then it must get its value by being made scarce. Anyplace known to have a large amount of oil production must be controlled.

Though I am doubtful of Lindsay Williams in some respects, I think he is correct that the oil companies are sitting on massive reserves in the US.

Another interesting point is the amount of Soviet/Russian research that is virtually unheard of in the West.  When people discuss abiotic in the US, it is some strange, new conspiracy.  But Russia is now the world's largest oil producer.  If abiotic theory was incorrect, the Russians would have just dug a bunch of deep holes.

[CrackSmokeRepublican]

Oil: the Market is the Manipulation

Posted by Gail the Actuary on July 26, 2009 - 9:14am
Topic: Economics/Finance
Tags: brent, chris cook, international petroleum exchange, nymex, oil market, oil prices [list all tags]

This is a guest post by Chris Cook. Chris is Former Director of the International Petroleum Exchange, and is now a Strategic Market Consultant and commentator.

Clearly manipulation has been going on in the global market in oil – there's nothing new about that – it's what intermediaries who transact for profit do and have always done. Indeed, some market wags say that trading could be defined as "acceptable market manipulation". But until the last few years what consenting adults were doing among themselves in the oil market didn't really affect the man in the street.

But things have changed. We have now reached the culmination of a process of financialisation of the oil market to a degree where the market has become entirely sociopathic. It now operates to the detriment of consumers and producers alike and for the benefit of the intermediaries who control the market.

How did we get here? Who's doing it? How are they doing it? And what can be done about it?

A Brief History

For a good many years a few major oil companies – the Seven Sisters – more or less tied up the oil market in long term contracts and there was little trading. They simply refined what they produced.

Through the Seventies and Eighties, after oil producer nations asserted themselves, trading in cargoes of physical oil and products began, and independent traders sprang up alongside the trading arms of some of the oil majors.

When I joined the International Petroleum Exchange as Head of Compliance and Market Regulation in 1990, the growing market in oil derivative contracts (futures and options contracts the purpose of which is to manage oil price risk) took off dramatically with the first Gulf War, and the IPE never looked back.

During my time at IPE major investment banks were completing a transformation into "Wall Street Refiners" who provided liquidity to the end user producers of oil and consumers of oil products who use derivative markets to "hedge" the risk that prices may fall, or rise, respectively. Indeed, I unwittingly facilitated their emergence by introducing new trading tools such as "Exchange of Futures for Swaps", "Volatility Trades" and "Settlement Trades" which became hugely successful.

When I left IPE in 1996 the pieces on the present day oil market chessboard were pretty much set, and the game was commencing. It was already clear that the trend towards screen trading was unstoppable, despite the wishful thinking of the traders on IPE's open outcry trading floor. Moreover, market participation of investors through funds was already visible in embryonic form.

A Partnership made in Heaven?

There are probably few more influential people than Peter Sutherland. An Irishman with a high level legal and political background, he became a non-executive director of BP as early as 1990, and after a brief but successful period to 1995 as head of the World Trade Organisation he has been on the BP board ever since, from 1997 as chairman. He has also chaired Goldman Sachs International since 1995.

Lord Browne of Madingley was a career BP man who ascended to the top in 1995 and eventually fell from grace in May 2007 shortly before he was due to retire. He was on the Board of Goldman Sachs from May 1999 until May 2007.

BP have always been natural traders. Unlike Exxon, who are vertically integrated and produce & refine oil and distribute products, BP sell the oil they produce on the market, and buy the oil they refine. In the years since 1995, BP has made phenomenal profits by trading oil, and oil derivatives.

So have Goldman Sachs. You don't rise to the top in Goldman Sachs unless you are responsible for making a great deal of money: and their energy trading operations have made immense amounts.

The key player in Goldman Sachs is the current CEO Lloyd Blankfein, who rose to the top through Goldman's commodity trading arm J Aron, and indeed he started his career at J Aron before Goldman Sachs bought J Aron over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio.

It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level - for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates.

The ICE Forms

The founder entrepreneur behind the Intercontinental Exchange (ICE) is    Jeffrey Sprecher    - the current CEO - who saw early the potential of screen trading for energy. He acquired the US-based Continental Power Exchange in 1997 as awareness of the Internet began to spread, and everyone grabbed for market platform territory, with Enron Online leading the way.

But my understanding is that the Continental Power Exchange would in all likelihood have gone the way of most Internet start ups had Gary Cohn of Goldman Sachs and John Shapiro of Morgan Stanley not had dinner and agreed to set up an exchange. Their two firms put up the initial capital, and their stroke of genius was to offer to the other founder members - BP, Deutsche Bank, Shell, Soc Gen and Total - an inspired deal. In exchange for providing liquidity these traders would receive equity in the exchange, alongside Sprecher's Continental Power Exchange, which was the other founder.

At a stroke ICE was created and had transcended the Liquidity/Neutrality paradox of the Internet: if a platform is neutral, then it's not liquid: and if it's liquid, it's not neutral. By 2001 things were really cooking; other trader/shareholders had joined ICE (having had to buy in); but the key was to actually reach the thousands of participants out there who were the actual "end users" of the market.

An approach to acquire NYMEX was rejected, since NYMEX membership was dominated by independent "locals" who were and are in competition with the investment banks as financial intermediaries. However, in July 2001 ICE acquired for a pittance the International Petroleum Exchange – which was set up and owned by brokers - having made the IPE an offer they couldn't refuse ie "....accept this offer, or we take our business elsewhere".

Since then, the ICE has extended beyond energy into other markets, but its core business remains energy.

The Brent Complex

The "Brent Complex" is aptly named, being an increasingly baroque collection of contracts relating to North Sea crude oil, originally based upon the Shell "Brent" quality crude oil contract which originated in the 1980s. It now consists of physical and forward BFOE (the Brent, Forties, Oseberg and Ekofisk fields) contracts in North Sea crude oil; and the key ICE Europe BFOE futures contract which is not a deliverable contract and is purely a financial bet based upon the price in the BFOE forward market.

There is also a whole plethora of other "OTC" contracts involving not only BFOE, but also a huge transatlantic "arbitrage" market between the BFOE contract and the US West Texas Intermediate contract originated by NYMEX, but cloned by ICE Europe.

North Sea crude oil production has been in secular decline for many years, and even though the North Sea crude oil benchmark contract was extended from the Brent quality to become BFOE, there are still only about 70 cargoes, each of 600,000 barrels, of North Sea oil which come out of the North Sea each month, worth at current prices about $2.5 billion. It is the price – as reported by Platts – of these cargoes which is the benchmark for global oil prices either directly (about 60%) or indirectly (through BFOE/WTI arbitrage) for most of the rest.

So it will be seen that traders of the scale of the ICE core membership wouldn't really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and "squeezing" those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate.

But note that all of this action was going on among consenting adults, and was pretty much a zero sum game, which explains why the UK regulators responsible for it essentially ignored it, with a "light touch" regime.

Market Strategy

If you are an end user, then market volatility is your enemy – indeed, that is why end users began to use derivatives in the first place. But if you are a middleman, then volatility is your friend, and the only bad news is no news. Likewise, good access to market data is essential to end users – whereas privileged or "asymmetric" access to market data is beneficial for intermediaries.

The temptation is therefore always there for intermediaries to create artificial volatility through "hyping" or even creating news, and to move the market around. Whether or not BP and Goldman Sachs trading arm J Aron were involved in such collaborative behaviour during the late 90s is an interesting point, since they were uniquely well placed, but if they did, they wouldn't have been the only ones.

Certainly by 2000 manipulation of settlement prices – for the purpose of making profits "off exchange" - was rife on the IPE to the extent that the opportunity for profit to which it gave rise was affectionately known by IPE locals as "Grab a Grand". When I discovered it by chance, and blew the whistle on it, my allegations were buried by the UK's Treasury, FSA and IPE between them, and so was I, personally and professionally.

Meanwhile, in 1999, Goldman Sachs managed to convince the US regulators, the CFTC, that they were entitled to the same regulatory "hedge" exemptions as those market participants who were genuinely hedging their physical requirements. This, combined with the collapse of Enron in December 2001, cleared the way for the complete takeover of the global energy marketplace which has followed in trading on (and off) the ICE platform, and prepared the ground for making money out of the growing constituency of financial investors.

Financial Investors  

Through the1990s two new breeds of financial investors in the energy markets began to evolve
Firstly, the inaptly named hedge funds, which recruited, or were set up by, some of the top energy traders, who preferred to make money for themselves rather than their employer oil firms or investment banks. These traders began to take large bets in the oil and energy markets, using investors' money as risk capital, using both on and off exchange contracts, and as much "leverage" as they could command, either through derivatives, borrowing, or both.

This was good business for the "prime brokers" who acted as counter-parties to hedge funds and benefited both from commission and fee income, but also from privileged knowledge of order flow, superior knowledge of the physical market, and "front running" of customers wherever possible.

The lion's share of this prime brokerage business went to the ICE founders, Goldman Sachs and Morgan Stanley, who took different approaches to their necessary relationship with the physical market. Morgan Stanley acquired energy market infrastructure, particularly storage, whereas Goldman appear to have relied more upon their close relationship with BP. In the years from around 2002 until the Credit Crunch neutered the hedge funds, BP, Goldman and other prime brokers prospered mightily.

The advent of the Goldman Sachs Commodity Index (GSCI) fund in 1995 was one of the earliest examples of a fund investing in commodities for the long term as a "hedge against inflation". To do so the fund ran increasingly significant positions in all commodity markets, but weighted towards energy. These positions were held over time, and had to be "rolled over" from month to month in the futures markets either directly, or through the intermediation of J Aron. This resulted in the phenomenon of what John Dizard documented as "Date Rape" and which I had observed – and pointed out to the FSA - several years earlier.

In the last few years, and particularly in the aftermath of the Credit Crunch, a massive wave of money has washed into a new breed of Exchange Traded Funds (ETFs) some of which exist solely to invest in commodity markets (ETCs). By mid 2008 it was estimated that some $260 billion of such money was invested in the energy markets. Compare that to the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most.

No one is in any doubt that this tidal wave of fund money caused a Bubble in oil prices culminating in a "spike" to $147.00 per barrel on 11 July 2008. But there appears to be a complete misconception – particularly in the US - as to how this Bubble occurred, and who was responsible. There is no consensus, and many conflicting theories, as to why it occurred and also why the oil price appears to be held at levels apparently unjustified by supply and demand.

How and Who

In Summer 2000 I was interviewed in London by a couple of staffers who were researching the Brent market on behalf of Senator Levin's Sub-Committee on Investigations, but the Senate then passed to the GOP in that year's election and a Minority Report was the result. This political attention to the Brent market pre-dated the assimilation of the global energy market by ICE, and almost the entire influx of speculative investor money into the market.

Current political attention is almost entirely focused on US futures markets, such as NYMEX and ICE, and a supposed "London Loophole" relating to trading on ICE Europe of WTI in particular. There is indeed a London Loophole, but it isn't where the politicians are looking.

The key point to understand is that for a deliverable futures contract like NYMEX's WTI, the futures price converges on the physical price, and not the other way around. What matters in terms of manipulation is the exercise of control over physical oil in tank or in transit, in order to be in position for delivery in accordance with exchange rules.

For six years I oversaw the trading and delivery cycle of the IPE's deliverable Gas Oil contract and can categorically say that neither IPE nor the London Clearing House saw any reason to even consider position limits other than in the month of delivery itself. Even were the Clearing members to be negligent or mad, IPE took care to ensure that any of their clients who still had contracts open were in a position to make or take delivery in accordance with the rules. I knew that all of the action in what was occasionally Europe's biggest game of "chicken" was taking place in the physical market between the consenting adults whom I had on my speed dial.

I have no doubt that the manipulation of global energy prices which is taking place does so not on exchanges, but in trading within the Brent Complex where the key transactions take place on the telephone or – in a modern twist – in the instant messaging chat-rooms to which most of the negotiations have migrated.

Some of the resulting contracts are registered and cleared by ICE Europe and elsewhere, but most remain open bilaterally between seller and buyer. So most of the huge volume of transactions which take place in ICE Europe and NYMEX are in fact "hedges" of the risks taken on by financial intermediaries in these opaque off-exchange transactions. The futures markets are the tail, not the dog: the problem is that the tail can be seen, but the dog is invisible.

BP and Goldman Sachs      are, as ever, the best placed, since Goldman has acquired strategic pipeline and other assets in the US which give them an information advantage over other players in the US oil and gas world. BP for their part may have disposed of their North Sea oil interests but they made sure they kept ownership of pipeline and other infrastructure.

I surmise therefore, that the rest of the financial intermediaries who have been queuing up to join the party, dance profitably to BP and Goldman's tune, and carry out similar transactions as counter-parties to producers and funds based upon the same market logic.

Which brings us to why the market is doing what it is doing. What actually is the logic?

Yield and Profit

At this point I must give a risk disclosure statement. What follows is purely speculation, and based in part upon some unconventional thinking I have come across, and find attractive.

From the perspective of a producer high prices are desirable, and they are hardly likely to complain about market prices being manipulated upwards.

Now the conventional assumption is that the ruling factor for producers in market decision-making is the marginal cost of production ie the cost of producing an additional barrel of oil, or tonne of iron ore. But if that were the case, why did all the commodity markets spike at the same time, and indeed, why are they doing so again at the moment, when there have been no obvious cost changes in any of them?

Clearly some other factors are at work here.

Firstly, the profit motive, and secondly, the price of money over time, or "yield curve".

Unlike for investors, the cost of storage for producers is virtually zero. Because they are in business to maximise profits they will therefore tend to keep their oil in the ground if it is more profitable over time to do so than to sell it and hold the proceeds in financial assets.

As Shalom Hamou puts it:

   

Financial decisions are always about choices:

    The shape of the yield curve is paramount in any financial decision, rather than long-term assets.

    Miners and drillers who contrary to the bankers have no vested interest in buying long-term assets, prefer short-term assets to long term assets when the yield-curve is inverted.

    If you consider the minerals as short-term assets, you come to the conclusion that confronted with an inverted yield curve, would prefer to hold minerals in the ground, their most profitable short-term assets. It creates a rise in the price of minerals which comforts them in their behaviour.

    Hence, miners would keep a higher proportion of their minerals in the ground where storage is infinite and almost free to them (for a miner, the best short-term asset is minerals in the ground, so selling them in order to buy short-term financial assets is simply not relevant), rather than sell them and invest the proceeds in long-term assets. Because of their self-restraint on output, hence on supply, they generate as the commodity price rises, which is compounded with the increase in their unrealized revenues.

    That behaviour need not be conscious but is probably the result of the propagation of arbitrages through the different financial markets, among them the cash and derivative markets on fixed income securities and the cash and futures markets for minerals.

His point is, as I read him, that it is the shape of the yield curve which tends to drive commodity prices. And of course it is the "propagation of arbitrages" which is the business of the BPs and Goldmans of this world.

Whether and to what extent the yield curve has affected commodity pricing are interesting questions beyond my experience and competence, but the argument is an interesting one.

Returning to market manipulation, market observers with long memories will recall that a cartel of tin producers was able for years to hold the tin price at an artificially high level by buying in production into a pool. Eventually, however, the high price stimulated so much new production that the cartel was unable to support the price and the market collapsed overnight from $800 per tonne to $400 per tonne.

More recently, Sumitomo's copper trader Yasuo Hamanaka was able to manipulate the copper market for some 10 years with the complicity of several investment banks and brokers who took part in a programme of lending and borrowing copper through forward sales on the London Metal Exchange. Mike Riess's brilliant presentation in 2003 is a fascinating study of modern market manipulation.

It appears to me that what has been occurring in the oil market may have been that – through the intermediation of the likes of J Aron in the Brent complex – long term funds have been lending money to producers – effectively interest-free - and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.

A combination of market hype, the opacity of the Brent Complex and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup which that company's management subsequently blamed mainly on Goldman Sachs.

To quote Riess:

Before the '80's, there were just us traders. Rogue traders arrived on the scene with the large institutional participants, both private and public. Today's companies and government marketing boards are large enough for senior management to distance itself from controversy, including market manipulation.

    In a competitive, amoral environment, middle managers in these mega-organizations have the authority to hijack an institution's reputation and the financial clout to manipulate the market—and they do. As long as they succeed, they enjoy promotions and perks and, sometimes, the fruits of embezzlement. If the manipulation unravels, the company denies any knowledge and hangs the rogue out to dry. We've seen this over and over again, most recently with D'Avila and Codelco, Hamanaka and Sumitomo, Leeson and Barings and Tsuda and Daiwa Bank.

The manipulation in the oil market is taking place at a different "meta" level to the Leesons and Hamanakas. The Goldman Sachs and J P Morgan Chase's of this world do not break rules: if rules are inconvenient to their purpose they have them changed.

The Market is the Manipulation.

What is to be Done?

The dysfunctional nature and inherent instability of today's market is a combination of the profit motive of trading intermediaries, and the "deficit-based" nature of money created as interest-bearing credit.

I believe that the solution lies in the evolution of a new – dis-intermediated – market architecture and a simple but radical approach to the financialisation of oil and energy through what I call "unitisation". This is the simple expedient of the creation and issue by producers of Units redeemable in energy, whether carbon-based or otherwise.

The evolution to such an architecture will in my view be a consequence of the direct instantaneous connections of the Internet. But that emergence is another story.
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Gail the Actuary on July 26, 2009 - 9:30am Permalink | Subthread | Comments top

Thanks, Chris, for your thoughts!

One thing that strikes me about the oil price run-up is that it took place over a very long period (about 6 years), during which time the supply of oil got tighter and tighter. If there was a distortion, it seems like at most it was during the post January 1, 2008, period. This is a simplified graph I used in another post:


World crude and condensate oil production, based on **EIA crude and condensate oil production data and ***EIA West Texas Intermediate spot prices. *2009 oil production is average January - April; prices are average January - June

[CrackSmokeRepublican]

Who suppressed the gold price yesterday: Gold This Morning: Unchanged

Names will be named and my COMEX brokers tell me that the seller who piled on with indiscriminate selling of ~10-15,000 DEC futures just before noon yesterday driving the price down over $30 bucks was J. Aron & Co, the commodity arm of one Goldman Sachs.

Goldman Sachs on behalf of the FED.

Wikipedia: J. Aron was a player in the coffee and gold markets, and the current CEO of Goldman, Lloyd Blankfein, joined the firm as a result of this merger....

[CrackSmokeRepublican]

Did   Goldman Goose Oil?
Christopher Helman and Liz Moyer, 03.25.09, 06:00 PM EDT
Forbes Magazine dated April 13, 2009

   Lloyd Blankfein's    Goldman Sachs turned up everywhere.  

How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.

When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation's crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.

But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup's collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup's accounts.

"What transpired at Semgroup was no less than a $500 billion fraud on the people of the world," says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.

What's the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup's trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. "Nothing's been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze," says John Tucker, who is representing Kivisto.

What's known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in prime position to use such data--and profited handsomely from Semgroup's fall. J. Aron was Semgroup's biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.

When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.

Some answers may emerge in late March when former FBI director Louis Freeh releases a report on the trading surrounding Semgroup's demise. He was hired by Semgroup and given subpoena power by the bankruptcy court judge in Delaware. Meanwhile the Securities & Exchange Commission is investigating, and lawyers involved in the bankruptcy say that Manhattan District Attorney Robert Morgenthau's office is looking into the actions of New York firms in the collapse. His office declines to comment.

Goldman says only that any allegations of oil price manipulation are "without foundation." Merrill and Citi ( C - news - people ) declined comment.  

Goldman and Aron (where Goldman Chief Executive Lloyd Blankfein got his start) have had a deep connection with Semgroup. In 2004 two former Goldman bankers bought a 30% stake in Semgroup for $75 million through their New York private equity firm, Riverstone. Both men, Pierre Lapeyre and David Leuschen, had helped form Goldman's commodity trading business, and Leuschen had been a director at Aron.

In late 2007 Semgroup entered into an oil-trading agreement with Aron. The companies began trading both oil futures and physical crude. Aron sent much of the oil it bought from Semgroup to a Coffeyville, Kans. refinery in which Goldman owns a 30% stake.

Semgroup's troubles mounted in the first quarter of 2008, when it had to post $2 billion in margin to cover losses. Goldman offered to underwrite a $1.5 billion private placement. Kivisto's attorney Tucker and others believe that it was in the Wall Street research for this offering that Semgroup's trading bets became fatally exposed. In April the banks (Merrill Lynch and Citibank were co-underwriters) required that Semgroup submit its trading positions to a stress test, a process one source describes as a "proctology exam." Goldman ended up abandoning the placement as investors balked at braving the liquidity crunch.

Meanwhile the futures markets had gotten wacky. On June 5, with no news catalysts, oil futures spiked $5 a barrel, the biggest one-day jump since the outbreak of the first Gulf war. The next day, on no news, the price jumped another $10 to $138. Traders say that in the days leading up to the $147 peak on July 12 there was the smell of blood in the water. "We just kept bidding the market higher," one trader says.

According to a trading summary submitted with court documents, Semgroup had entered into some terribly costly trades with Aron. In February 2008 Semgroup sold Aron call options on 500,000 barrels of oil for July delivery with a strike price of $96 per barrel. That meant that at the peak Semgroup's loss on each of those barrels was $51, or $25.5 million on that trade. Goldman says it "can't comment on the trading positions of counterparties."

Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays ( BCS - news - people ) Capital. Barclays' bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn't comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: "With the portfolio in Barclays' hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed."

Since the bankruptcy, Aron has agreed to pay Semgroup only $90 million to settle up accounts. That's not enough for the dozens of oil producers who still haven't been paid for $430 million in oil that Semgroup delivered to Aron. "We sued J. Aron because Semgroup didn't do it," says Phillip Tholen, chief financial officer of oil company Samson Resources. "I can't fathom why they wouldn't file against J. Aron for those monies."

One possible answer: the Goldman connection. Going after Aron's cash would complicate matters with Riverstone, which still wields sway over the board. The creditors have reason to keep Riverstone and Goldman happy; the duo has teamed up to buy myriad energy assets in recent years, most notably a $22 billion leveraged buyout of pipeline king Kinder Morgan. They are likely to team up again to buy choice Semgroup assets out of bankruptcy.


http://www.forbes.com/forbes/2009/0413/ ... e-oil.html

[CrackSmokeRepublican]

Chen Jiulin : China Aviation Oil 's financial system and lessons learned

July 4th, 2010admin



Chen Jiulin had the " Chinese entrepreneurs , " published the article " How to extend the right to speak our oil ? " was regarded as an important signal of its comeback , recently , Chen Jiulin the second article by the journal publishes . While living in Gezhouba Group, but still heart Chen Jiulin oil finance . This time , Chen Jiulin more bluntly , replica purses the oil China needs to establish and improve the financial system .

Chen Jiulin he would not even mention the lessons mentioned in CAO , Chinese companies face Goldman Sachs , Mitsui and other " itinerant veteran " lack of experience. Chen Jiulin said , resulting in huge losses of China Aviation Oil options trading , Goldman Sachs is a subsidiary company – Jerry (J Aron) company selling to the China Aviation Oil traders , following Reid (Gerard Rigby) 's . At first, the book loss in the event , Chen Jiulin demanded the immediate liquidated . However, Goldman Sachs has suggested " move disk . " China Aviation Oil 's two Norwegian dish recommendations , are Goldman Sachs raised by Chen Jiulin on a business trip . " China Aviation Oil has to Goldman Sachs to court . but after my imprisonment , the lawsuit to nothing . "

Despite a warning for China Aviation Oil , China still has many large companies make the same mistakes in the international oil financial derivative markets suffered heavy losses.

Currently, China annually imports approximately 200 million tons of oil , has become the world's second oil importer. However, the large amount of oil consumption and imports , has failed to raise the international oil market, China 's influence on international oil prices in China 's voice is still weak . In international oil prices , China is just a passive recipient , bear the tremendous volatility in oil prices risk . Sharp fall in international oil prices soaring or by means of transfer to the domestic oil imports to China's economic development and business operations bring a great deal of uncertainty. Establish and improve financial systems of oil , is to change this negative situation is an important measure .

CAO lesson : financial system, essential oil

China to build oil , there are four reasons for the financial system .

First, the international oil market is increasingly closely linked with    finance .    Today's international oil market has not only a simple commodity trading markets . Since the 70s since the 20th century , due to changes in international oil prices have become more frequent and intense , the market participants to avoid price risk created strong demand for oil futures and other financial instruments on the increasing demand . In this context, the oil futures market developed rapidly , forwards, options , swaps and other derivatives , have also started and spread . Meanwhile, oil market participants are no longer limited to oil exploration , refining , trading and other related businesses . Hedge funds, private equity funds, prom gownspension funds, investment banks, commercial banks , insurance companies, many financial institutions have begun to set foot in the oil sector , and to play a very important role.

With the various financial institutions and participation , as well as the development of oil derivatives and trading , international oil market "financial property "has become increasingly clear that a large number of oil transactions to be completed by the financial markets , oil derivatives have been Become an integral part of the oil market . Now, not only by international oil supply and demand in the spot market to decide , but also influenced by long-term delivery , futures and other financial markets, the impact of the oil .

Second, the absence of China's oil to China 's financial markets had a negative impact on the economy . In the oil and the increasingly close relationship between financial environment, the more our lack of size and a more complete financial market, the oil can not be actively and positively participate in international oil pricing can only take orders from international oil and financial institutions, the market manipulation. China's crude oil imports in 2009 was 203.79 million tons , 14 billion barrels off the contract . If oil prices rise 10 U.S. dollars per barrel , while import costs by 140 billion dollars, equivalent to eating the country 's largest oil companies – PetroChina year net profit ( net profit for the 2009 China Petroleum and 103.173 billion yuan , equivalent to 151.28 Billion). High oil prices on oil and related industries in addition to adverse effects, also lead to inflation and other issues , our overall economic harm .

Third, Chinese enterprises and China Petroleum and derivatives losses related to financial markets, the lack of oil . In recent years, although China Aviation Oil 's warning , there are still many large enterprises in China making the same mistakes in the international oil financial derivative markets suffered heavy losses. The reason for both trading enterprises themselves properly, inadequate internal risk control reasons, the lack of oil and domestic financial markets . This is because : the face of the frequent fluctuations in international oil prices , the use of financial derivatives for risk management is a complex market environment, enterprises must choose . China's oil companies and related businesses , especially those who need to hedge the risk of oil price fluctuations of major central enterprises , must make use of oil and its derivative financial instruments to operate , in order to achieve hedge , the purpose of avoiding risk .

However, because of the oil yet to establish a sound financial markets, and oil derivatives instruments lack of domestic enterprises can only conduct business in overseas markets , while in Singapore, such as the Petroleum Financial markets, active in Goldman Sachs , Mitsui and other "Wild Veteran " presence. They use the weakness of Chinese enterprises lack of experience , design complex high- risk , high leverage of oil derivatives, and willing to use fraudulent means to sell to Chinese companies .

Case of China Aviation Oil , causing huge losses of China Aviation Oil options trading , Goldman Sachs is a subsidiary company – Jerry (J Aron) company selling to the China Aviation Oil traders , following Reid (Gerard Rigby) 's . At first, in the event of loss book , I asked immediately liquidated . However, Goldman Sachs has suggested " move cylinders. " The proposal makes sense , it seems that only Norway and the best dish is the only choice . My lawyer able to read the proposal commented: "Any manager can only choose to see the proposed move set ! " Moreover, China Aviation Oil 's two Norwegian dish recommendations are Goldman Sachs when I am on a business trip Proposed . China Aviation Oil has to Goldman Sachs to court . But after my imprisonment , the lawsuit to nothing . I recently saw from the media, Professor Huang Ming Cheung Kong Graduate School of this to say : " Goldman Sachs and China Aviation Oil (Singapore ) and the issues involved in the transaction process , is far more serious than the problems at home . " Huang Ming Professor , China Aviation Oil sued Goldman Sachs fraud and misleading the court case , in fact, can be 100% win ! of course , the Japanese Mitsui in China Aviation Oil incident played in adverse effects compared with Goldman Sachs may have had of the Surpasses it.

Finally, China's oil market is still in the early stages of development finance . Petroleum Financial markets despite the economic structure in the world are playing an increasingly large role in China, however, participation and development level is relatively low. In early 1993 , China carried out in Shanghai Petroleum Exchange, oil futures , by 1994 , its average daily trading volume over the world's third largest energy futures market – the Singapore International Monetary Exchange , attracted wide international attention . However, domestic inflation and overheating at the impact of oil speculation and negative effects such as overheating , China in 1995 to stop the oil futures . Over the next nine years , China 's oil futures trading at the blank stage .

Into the twenty-first century, China began to gradually restore oil-related futures products . In 2004, fuel oil futures listed on the Shanghai Futures Exchange . December 2009 , crude oil futures in the newly established Bohai Sea near Tianjin Commodity Exchange listed .


Fuel oil and crude oil futures market to re- run oil to China 's financial markets have symbolic significance , but also further validates the oil in our country to establish and improve the financial system need . However, compared to mature markets with the international , financial system of China 's oil is still imperfect, few product categories , gasoline, diesel and other refined oil futures has not yet introduced , options , swaps and other derivatives have not yet established, market participation Opening degree and a low level of internationalization .

Speed up the establishment and improvement of the financial system of our own oil is the trend . Oil and financial integration is the development trend of the oil market . Our country has oil financial markets, will enhance China's international influence on oil markets and pricing power , which directly benefit our economy. At least it will bring our company the following three benefits: ( 1 ) for Chinese enterprises to provide a platform for hedging and risk hedging , to avoid the risk of oil price fluctuations ; ( 2 ) China's enterprises in the territory of risk in financial derivatives Controllable degree , much larger than the outside ; ( 3) the Chinese Government and relevant agencies can more effectively monitor and regulate their own business (especially state-owned enterprise) oil derivatives .

Oil 's financial system sound policy recommendations

China's financial system should improve the oil to start from the following points .
First, the sound of types of oil derivatives . To the core of the oil futures market of financial derivatives market , is an important supplement to the oil spot market . In our current oil futures market, the product is still relatively simple .

In addition to need a rich variety of petroleum products , the financial derivatives category also need to be further increased to meet the needs of different enterprises at different levels . For example , in addition to futures , but also develop more standardized options , swaps and other derivatives contracts in order to provide enterprises with more and more flexible choice. If China's oil market to provide adequate standards of financial products , Chinese enterprises do not have the overseas market , especially outside the OTC market to carry out transactions , or to reduce the opportunity for doing so . Trading risk of these enterprises will be greatly reduced .

Second, the oil -rich financial market players . As the high- risk financial derivatives market , China's domestic enterprises to participate in derivatives trading made more stringent requirements. Strict approval system and reduce the Chinese enterprises involved in financial derivatives trading risks , but also making China the number of firms in the futures market lower . This is not conducive to China's financial derivatives business enterprises to participate in the accumulation of experience , but also reduced the oil in the international financial markets in China 's voice .

Therefore , strict risk control , under the premise proposed to consider gradually relaxed pair of domestic enterprises to participate oil derivatives trading restrictions , in order to participate in the oil -rich country 's financial markets and gradually accumulated in the oil financial services experience. In addition , you can follow the example of the QFII securities investment requirements , allow hedging of foreign oil to enter the financial market in China to avoid risks and improve China's oil derivatives trading volume and transaction size , which is conducive to China and international practice.

Third , a sound legal system derivatives . Currently, many countries have developed a special oil derivatives in the relevant laws. Derivatives law, for further regulate derivatives market to restrain illegal behavior , reducing the exchanges and brokerage firms and investors risk , have a great effect . The country has not developed specific futures and derivatives laws, current implementation of the " Provisional Regulations on Administration of Futures Trading " and related management practices law rank is too low to completely meet the needs of modern financial derivatives market . Therefore, accelerating the introduction of " Futures Trading Law "and other derivatives law, it is very necessary and urgent. China's development of relevant laws , it should amend the current international trading rules unreasonable .

Fourth, to enhance the risk of derivatives regulation . Gradually relax the foreign enterprises to participate in oil derivatives trading restrictions , we have to strengthen the regulatory risks of derivatives transactions . On derivatives transactions from the enterprise , exchange and trade associations to strengthen the regulation of different angles .

Regulatory focus should be placed on state-owned enterprises and listed companies . For other companies , you can approach through industry associations , for guidance and training . For participation in derivatives of state-owned enterprises and listed companies, from company management , financial systems , performance appraisal system and the market response measures in a bid to improve its investment management and risk control system.

Exchange is an important place for oil trading is the most basic derivatives management and implementing agencies. Members can exchange management, trading activities , brokerage settlement, strengthening management .

Association is an important way to strengthen supervision and useful supplement . At present ,

Futures Industry Association has been established , but Zai perfect Kind Later oil financial derivative products , the oil can be the formation of larger Fan Wei Yan Sheng goods industry associations, industry self-regulatory organization to the role of Jia Jiang .

Fifth, the big oil financial derivatives market , the increase in oil prices right to speak . China's oil-consuming nations of the position have determined that the oil the great potential of the financial markets , we must establish the appropriate marketing platform to meet business and community development needs.

Similarly, the Shanghai Futures Exchange The fuel oil futures , for example, in the past , fuel oil pricing in Singapore , Chinese enterprises can only " Platts Singapore " settlement offer as a reference imported . Shanghai fuel oil futures in the introduction , relying on a huge spot market in China , gradually formed to reflect the actual situation of market supply and demand in China , " China price " and "Chinese standard " , in the international market had a significant impact . Shanghai fuel oil futures in reference success stories , if introduced , including China's crude oil, gasoline , diesel, kerosene , asphalt , and more products, derivatives trading , will help to expand our market influence on the international market , even the formation of "China price . "

http://www.currentaffairs-3166.com/?p=207

[CrackSmokeRepublican]

Still applies today...
--------
The ABCs of Oil Manipulation

  July 27, 2009  
   
Chris Cook


Clearly, manipulation has been going on in the global market in oil – there's nothing new about that – it's what intermediaries who transact for profit do and have always done. Indeed, some market wags say that trading could be defined as "acceptable market manipulation". But until the last few years what consenting adults were doing among themselves in the oil market didn't really affect the man in the street.

But things have changed. We have now reached the culmination of a process of financialisation of the oil market to a degree where the market has become entirely sociopathic. It now operates to the detriment of consumers and producers alike and for the benefit of the intermediaries who control the market.

How did we get here? Who's doing it? How are they doing it? And what can be done about it?

A Brief History

For a good many years a few major oil companies – the Seven Sisters – more or less tied up the oil market in long term contracts and there was little trading. They simply refined what they produced.

Through the Seventies and Eighties, after oil producer nations asserted themselves, trading in cargoes of physical oil and products began, and independent traders sprang up alongside the trading arms of some of the oil majors.

When I joined the International Petroleum Exchange as Head of Compliance and Market Regulation in 1990, the growing market in oil derivative contracts (futures and options contracts the purpose of which is to manage oil price risk) took off dramatically with the first Gulf War, and the IPE never looked back.

During my time at IPE major investment banks were completing a transformation into "Wall Street Refiners" who provided liquidity to the end user producers of oil and consumers of oil products who use derivative markets to "hedge" the risk that prices may fall, or rise, respectively. Indeed, I unwittingly facilitated their emergence by introducing new trading tools such as "Exchange of Futures for Swaps", "Volatility Trades" and "Settlement Trades" which became hugely successful.

When I left IPE in 1996 the pieces on the present day oil market chessboard were pretty much set, and the game was commencing. It was already clear that the trend towards screen trading was unstoppable, despite the wishful thinking of the traders on IPE's open outcry trading floor. Moreover, market participation of investors through funds was already visible in embryonic form.

A Partnership made in Heaven?

There are probably few more influential people than Peter Sutherland. An Irishman with a high level legal and political background, he became a non-executive director of BP as early as 1990, and after a brief but successful period to 1995 as head of the World Trade Organization he has been on the BP board ever since, from 1997 as chairman. He has also chaired Goldman Sachs International (GS) since 1995.

Lord Browne of Madingley was a career BP man who ascended to the top in 1995 and eventually fell from grace in May 2007 shortly before he was due to retire. He was on the Board of Goldman Sachs from May 1999 until May 2007.

BP have always been natural traders. Unlike Exxon (XOM), who are vertically integrated and produce & refine oil and distribute products, BP sell the oil they produce on the market, and buy the oil they refine. In the years since 1995, BP has made phenomenal profits by trading oil and oil derivatives.

So have Goldman Sachs. You don't rise to the top in Goldman Sachs unless you are responsible for making a great deal of money: and their energy trading operations have made immense amounts.

The key player in Goldman Sachs is the current CEO Lloyd Blankfein, who rose to the top through Goldman's commodity trading arm J Aron, and indeed he started his career at J Aron before Goldman Sachs bought J Aron over 25 years ago. With his colleague Gary Cohn, Blankfein oversaw the key energy trading portfolio.

It appears clear that BP and Goldman Sachs have been working collaboratively – at least at a strategic level – for maybe 15 years now. Their trading strategy has evolved over time as the global market has developed and become ever more financialised. Moreover, they have been well placed to steer the development of the key global energy market trading platform, and the legal and regulatory framework within which it operates.

The ICE Forms

The founder/entrepreneur behind the Intercontinental Exchange (ICE) is Jeffrey Sprecher – the current CEO – who saw early the potential of screen trading for energy. He acquired the US-based Continental Power Exchange in 1997 as awareness of the Internet began to spread, and everyone grabbed for market platform territory, with Enron Online leading the way.

But my understanding is that the Continental Power Exchange would in all likelihood have gone the way of most Internet start ups had Gary Cohn of Goldman Sachs and John Shapiro of Morgan Stanley (MS) not had dinner and agreed to set up an exchange. Their two firms put up the initial capital, and their stroke of genius was to offer to the other founder members – BP, Deutsche Bank (DB), Shell (RDS.A), Soc Gen (SCGLY.PK) and Total (TOT) – an inspired deal. In exchange for providing liquidity these traders would receive equity in the exchange, alongside Sprecher's Continental Power Exchange, which was the other founder.

At a stroke ICE was created and had transcended the Liquidity/Neutrality paradox of the Internet: if a platform is neutral, then it's not liquid: and if it's liquid, it's not neutral. By 2001 things were really cooking; other trader/shareholders had joined ICE (having had to buy in); but the key was to actually reach the thousands of participants out there who were the actual "end users" of the market.

An approach to acquire NYMEX was rejected, since NYMEX membership was dominated by independent "locals" who were and are in competition with the investment banks as financial intermediaries. However, in July 2001 ICE acquired for a pittance the International Petroleum Exchange – which was set up and owned by brokers – having made the IPE an offer they couldn't refuse, i.e. "....accept this offer, or we take our business elsewhere".

Since then, the ICE has extended beyond energy into other markets, but its core business remains energy.

The Brent Complex
The "Brent Complex" is aptly named, being an increasingly baroque collection of contracts relating to North Sea crude oil, originally based upon the Shell "Brent" quality crude oil contract which originated in the 1980s. It now consists of physical and forward BFOE (the Brent, Forties, Oseberg and Ekofisk fields) contracts in North Sea crude oil; and the key ICE Europe BFOE futures contract which is not a deliverable contract and is purely a financial bet based upon the price in the BFOE forward market.

There is also a whole plethora of other "OTC" contracts involving not only BFOE, but also a huge transatlantic "arbitrage" market between the BFOE contract and the US West Texas Intermediate contract originated by NYMEX, but cloned by ICE Europe.

North Sea crude oil production has been in secular decline for many years, and even though the North Sea crude oil benchmark contract was extended from the Brent quality to become BFOE, there are still only about 70 cargoes, each of 600,000 barrels, of North Sea oil which come out of the North Sea each month, worth at current prices about $2.5 billion. It is the price – as reported by Platts – of these cargoes which is the benchmark for global oil prices either directly (about 60%) or indirectly (through BFOE/WTI arbitrage) for most of the rest.

So it will be seen that traders of the scale of the ICE core membership wouldn't really have to put much money at risk by their standards in order to move or support the global market price via the BFOE market. Indeed the evolution of the Brent market has been a response to declining production and the fact that traders could not resist manipulating the market by buying up contracts and "squeezing" those who had sold oil they did not have. The fewer cargoes produced, the easier the underlying market is to manipulate.

But note that all of this action was going on among consenting adults, and was pretty much a zero sum game, which explains why the UK regulators responsible for it essentially ignored it, with a "light touch" regime.

Market Strategy

If you are an end user, then market volatility is your enemy – indeed, that is why end users began to use derivatives in the first place. But if you are a middleman, then volatility is your friend, and the only bad news is no news. Likewise, good access to market data is essential to end users – whereas privileged or "asymmetric" access to market data is beneficial for intermediaries.

The temptation is therefore always there for intermediaries to create artificial volatility through "hyping" or even creating news, and to move the market around. Whether or not BP and Goldman Sachs trading arm J Aron were involved in such collaborative behaviour during the late 90s is an interesting point, since they were uniquely well placed, but if they did, they wouldn't have been the only ones.

Certainly by 2000 manipulation of settlement prices – for the purpose of making trading profits "off exchange" – was rife on the IPE to the extent that the opportunity for profit to which it gave rise was affectionately known by IPE locals as "Grab a Grand". When I discovered it by chance, and blew the whistle on it, my allegations were buried by the UK's Treasury, FSA and IPE between them, and so was I, personally and professionally.

Meanwhile, in 1999, Goldman Sachs managed to convince the US regulators, the CFTC, that they were entitled to the same regulatory "hedge" exemptions as those market participants who were genuinely hedging their physical requirements. This, combined with the collapse of Enron in December 2001, cleared the way for the complete takeover of the global energy marketplace which has followed in trading on (and off) the ICE platform, and prepared the ground for making money out of the growing constituency of financial investors.

Financial Investors

Through the 1990s two new breeds of financial investors in the energy markets began to evolve.

Firstly, the inaptly named hedge funds, which recruited, or were set up by, some of the top energy traders, who preferred to make money for themselves rather than their employer oil firms or investment banks. These traders began to take large bets in the oil and energy markets, using investors' money as risk capital, using both on and off exchange contracts, and as much "leverage" as they could command, either through derivatives, borrowing, or both.

This was good business for the "prime brokers" who acted as counter-parties to hedge funds and benefited both from commission and fee income, but also from privileged knowledge of order flow, superior knowledge of the physical market, and "front running" of customers wherever possible.

The lion's share of this prime brokerage business went to the ICE founders, Goldman Sachs and Morgan Stanley, who took different approaches to their necessary relationship with the physical market. Morgan Stanley acquired energy market infrastructure, particularly storage, whereas Goldman appears to have relied more upon their close relationship with BP. In the years from around 2002 until the Credit Crunch neutered the hedge funds, BP, Goldman and other prime brokers prospered mightily.

The advent of the Goldman Sachs Commodity Index (GSCI) fund in 1995 was one of the earliest examples of a fund investing in commodities for the long term as a "hedge against inflation". To do so the fund ran increasingly significant positions in all commodity markets, but weighted towards energy. These positions were held over time, and had to be "rolled over" from month to month in the futures markets either directly, or through the intermediation of J Aron. This resulted in the phenomenon of what John Dizard documented as Date Rape and which I had observed – and pointed out to the FSA – several years earlier.

In the last few years, and particularly in the aftermath of the Credit Crunch, a massive wave of money has washed into a new breed of Exchange Traded Funds (ETFs) some of which exist solely to invest in commodity markets (ETCs). By mid 2008 it was estimated that some $260 billion of such money was invested in the energy markets. Compare that to the value of the oil actually coming out of the North Sea each month, at maybe $4 to $5 billion at most.

No one is in any doubt that this tidal wave of fund money caused a Bubble in oil prices culminating in a "spike" to $147.00 per barrel on 11 July 2008. But there appears to be a complete misconception – particularly in the US – as to how this Bubble occurred, and who was responsible. There is no consensus, and many conflicting theories, as to why it occurred and also why the oil price appears to be held at levels apparently unjustified by supply and demand.

How and Who

In the Summer of 2000 I was interviewed in London by a couple of staffers who were researching the Brent market on behalf of Senator Levin's Sub-Committee on Investigations, but the Senate then passed to the Republicans in that year's election and a Minority Report was the result. This political attention to the Brent market pre-dated the assimilation of the global energy market by ICE, and almost the entire influx of speculative investor money into the market.

Current political attention is almost entirely focused on US futures markets, such as NYMEX and ICE, and a supposed "London Loophole" relating to trading on ICE Europe of WTI in particular. There is indeed a London Loophole, but it isn't where the politicians are looking.

The key point to understand is that for a deliverable futures contract like NYMEX's WTI, the futures price converges on the physical price, and not the other way around. What matters in terms of manipulation is the exercise of control over physical oil in tank or in transit, in order to be in position for delivery in accordance with exchange rules.

For six years I oversaw the trading and delivery cycle of the IPE's deliverable Gas Oil contract and can categorically say that neither IPE nor the London Clearing House saw any reason to even consider position limits other than in the month of delivery itself. Even if the Clearing members were negligent or mad, IPE took care to ensure that any of their clients who still had contracts open were in a position to make or take delivery in accordance with the rules. I knew that all of the action, in what was occasionally Europe's biggest game of "chicken", was taking place in the physical market between the consenting adults whom I had on my speed dial.

I have no doubt that the manipulation of global energy prices which is taking place does so not on exchanges, but in trading within the Brent Complex where the key transactions take place on the telephone or – in a modern twist – in the instant messaging chat-rooms to which most of the negotiations have migrated.

Some of the resulting contracts are registered and cleared by ICE Europe and elsewhere, but most remain open bilaterally between seller and buyer. So most of the huge volume of transactions which takes place in ICE Europe and NYMEX are in fact "hedges" of the risks taken on by financial intermediaries in these opaque off-exchange transactions. The futures markets are the tail, not the dog: the problem is that the tail can be seen, but the dog is invisible.

BP and Goldman Sachs are, as ever, the best placed, since Goldman has acquired strategic pipeline and other assets in the US which give them an information advantage over other players in the US oil and gas world. BP for their part may have disposed of their North Sea oil interests but they made sure they kept ownership of pipeline and other infrastructure.

I surmise therefore, that the rest of the financial intermediaries who have been queuing up to join the party, dance profitably to BP and Goldman's tune, and carry out similar transactions as counter-parties to producers and funds based upon the same market logic.

Which brings us to why the market is doing what it is doing. What actually is the logic?

Yield and Profit

At this point I must give a risk disclosure statement. What follows is purely speculation, and based in part upon some unconventional thinking I have come across, and find attractive.

From the perspective of a producer high prices are desirable, and they are hardly likely to complain about market prices being manipulated upwards.

Now the conventional assumption is that the ruling factor for producers in market decision making is the marginal cost of production, i.e. the cost of producing an additional barrel of oil, or tonne of iron ore. But if that were the case, why did all the commodity markets spike at the same time, and indeed, why are they doing so again at the moment, when there have been no obvious cost changes in any of them?

Clearly some other factors are at work here.

Firstly, the profit motive, and secondly, the price of money over time, or "yield curve".

Unlike for investors, the cost of storage for producers is virtually zero. Because they are in business to maximise profits they will therefore tend to keep their oil in the ground if it is more profitable over time to do so than to sell it and hold the proceeds in financial assets.

As Shalom Hamou puts it:

    Financial decisions are always about choices: the shape of the yield curve is paramount in any financial decision, rather than long-term assets.

    Miners and drillers who, contrary to the bankers, have no vested interest in buying long-term assets, prefer short-term assets to long term assets when the yield-curve is inverted. If you consider the minerals as short-term assets, you come to the conclusion that [if] confronted with an inverted yield curve, [one] would prefer to hold minerals in the ground - their most profitable short-term assets. It creates a rise in the price of minerals which comforts them in their behaviour.

    Hence, miners would keep a higher proportion of their minerals in the ground where storage is infinite and almost free to them. For a miner, the best short-term asset is minerals in the ground, so selling them in order to buy short-term financial assets is simply not relevant, rather than sell them and invest the proceeds in long-term assets. Because of their self-restraint on output, hence on supply, they generate as the commodity price rises, which is compounded with the increase in their unrealized revenues.

    That behaviour need not be conscious but is probably the result of the propagation of arbitrages through the different financial markets, among them the cash and derivative markets on fixed income securities and the cash and futures markets for minerals.

Hamou's point is, as I read him, that it is the shape of the yield curve which tends to drive commodity prices. And, of course, it is the "propagation of arbitrages" which is the business of the BPs and Goldmans of this world.

Whether and to what extent the yield curve has affected commodity pricing are interesting questions beyond my experience and competence, but the argument is an interesting one.

Returning to market manipulation, market observers with long memories will recall that a cartel of tin producers was able for years to hold the tin price at an artificially high level by buying in production into a pool. Eventually, however, the high price stimulated so much new production that the cartel was unable to support the price and the market collapsed overnight from $800 per tonne to $400 per tonne.

More recently, Sumitomo's (SSUMY.PK) copper trader Yasuo Hamanaka was able to manipulate the copper market for some 10 years with the complicity of several investment banks and brokers who took part in a programme of lending and borrowing copper through forward sales on the London Metal Exchange. Mike Riess's brilliant presentation in 2003 is a fascinating study of modern market manipulation.

It appears to me that what has been occurring in the oil market may have been that – through the intermediation of the likes of J Aron in the Brent Complex – long term funds have been lending money to producers – effectively interest-free – and in return the producers have been lending oil to the funds. This works well for as long as funds flow into the market, or do not withdraw in quantity, but once funds withdraw money from the market, there is a sudden collapse in price.

A combination of market hype, the opacity of the Brent Complex and the relatively small scale of trading of the benchmark BFOE crude oil contract enabled the long run up in prices, and several observers believe that the dramatic spike to $147.00 per barrel was the specific outcome of the collapse of SemGroup which that company's management subsequently blamed mainly on Goldman Sachs.

To quote Riess:

    Before the '80s, there were just us traders. Rogue traders arrived on the scene with the large institutional participants, both private and public. Today's companies and government marketing boards are large enough for senior management to distance itself from controversy, including market manipulation.

    In a competitive, amoral environment, middle managers in these mega-organizations have the authority to hijack an institution's reputation and the financial clout to manipulate the market—and they do. As long as they succeed, they enjoy promotions and perks and, sometimes, the fruits of embezzlement. If the manipulation unravels, the company denies any knowledge and hangs the rogue out to dry. We've seen this over and over again, most recently with D'Avila and Codelco, Hamanaka and Sumitomo, Leeson and Barings and Tsuda and Daiwa Bank.

The manipulation in the oil market is taking place at a different "meta" level to that of the Leesons and Hamanakas. The Goldman Sachs and JP Morgan Chases (JPM) of this world do not break rules: if rules are inconvenient to their purpose they have them changed.

The Market is the Manipulation.

What is to be Done?

The dysfunctional nature and inherent instability of today's market is a combination of the profit motive of trading intermediaries, and the "deficit-based" nature of money created as interest-bearing credit.

I believe that the solution lies in the evolution of a new – dis-intermediated – market architecture and a simple but radical approach to the financialisation of oil and energy through what I call "unitisation". This is the simple expedient of the creation and issue by producers of Units redeemable in energy, whether carbon-based or otherwise.

The evolution to such an architecture will in my view be a consequence of the direct instantaneous connections of the Internet. But that emergence is another story.


http://seekingalpha.com/article/151480- ... nipulation

[CrackSmokeRepublican]

There is no insufficient supply... just SCAMMING G-D Idiot Jews...  J.Aron is likely the next Enron as soon as all their Jew Global Scams unwind... --CSR

http://www.ftc.gov/bcp/workshops/energy ... oilgas.pdf


==============

The $2.5 trillion global oil scam
By Dan Jones | 11/17/09 - 09:00


Global Oil Scam


Apparently, there's a global oil scam making  Bernie Madoff look like a petty thief.

If serial entrepreneur and Seeking Alpha columnist Philip Davis is to be believed, the world is being scammed out of $2.5 trillion, 50 times greater than the sum Madoff took from the duped investors.

According to Davis, the scam starts in 2000 with the formation of the ICE - the Intercontinental Exchange. The ICE - founded by Goldman Sachs, Morgan Stanley, BP, Total, Shell, Deutsche Bank and Societe Generale - is an online commodities and futures marketplace that exists outside the US and operates free from the constraints of US laws.

After a Congressional investigation into energy trading in 2003, the ICE was found to be facilitating "round-trip" trades. This is where one firm sells energy to another, and then the second firm sells the same amount of energy back to the first company, at the same time and at the exact same price, as told by Davis.

No commodity ever changes hands

Quite shockingly no commodity ever changes hands, but the transactions still send a signal to the market, artificially boosting company revenue. Angry yet? There's more.

Because the trading is unregulated by Washington, its difficult to gauge the scale on which "round-trip" trading takes place.

But when DMS Energy were investigated by Congress, the company admitted that 80 percent of its trades in 2001 were round-trip trades. This means 80 percent of all trades in that year were false trades. Not a drop of oil changed hands, but the balance sheets showed increased revenue.

The idea is to hike up commodity prices. For example, according to Davis, after the ICE turned commodity trading into a "speculative casino game where pricing was notional and contracts could be sold by people who never produced a thing, to people who didn't need the things that were not produced", Goldman Sachs were able to triple the price of commodities in just five years.

ICE can create artificial shortages and drive speculative demand

The beauty (or rather the horror) of the scam outlined by Davis is that because they control the oil markets, the ICE can create artificial shortages and drive speculative demand in order to charge consumers an extra dollar per gallon of gas. And whereas this may not seem like much, this $1 soon becomes $50 billion A MONTH as global drivers consume 1.7 billion gallons of gas every single day.

Whereas, at this stage, it would not be accurate or indeed wise to suggest what Philip Davis claims is either true or false, one cannot ignore the issue. There have been concerns for many years that global markets are controlled by a monopoly of mega-organizations, but there could be a strong case for suggesting the ICE is close to becoming just that - a super-organization with the power to push oil prices up or down.

Good luck Washington, you might just be getting a deluge of mail demanding answers.

http://www.ngoilgas.com/news/25-trillio ... -oil-scam/

[CrackSmokeRepublican]

These two below concerning China show that J Aron and the Wall Street Jews (ala Enron) are pulling Chinese and US companies that hedge large Oil contracts into a massive Jew Talmudic Scam.... if there was an executive plane crash at G.S. you'd see prices return to normal almost overnight in my opinion....--CSR

=========

Goldman Sachs (NYSE:GS) Threatening to Sue Chinese Power Company 'Shenzhen Nanshan Power' for $80 Million in Contract Defaults

January 4th, 2010 • View Comments • Filed Under • by Gary

After a little over a year, Goldman Sachs (NYSE:GS) and Chinese Power Company 'Shenzhen Nanshan Power' haven't been able to come to an agreement over to oil hedging contracts which Shenzhen defaulted on; a battle centering around losses related to derivatives.

The commodity arm of Goldman Sachs, J Aron & Company, has said if Shenzhen doesn't pay up, they'll have to resort to suing them for $80 million for breaking the contracts between the two in October 2008.

Shenzhen Nanshan Power, is a Chinese state-owned enterprise producing thermal power. A spokesman for Shenzhen stated the company won't pay what J Aron is demanding, although they continue in negotiations. In other words, after almost 15 months there's no headway, so it's bound to go to court to resolve it, as what more can be added to the negotiations than has already been talked about?

J Aron has pressed the issue by saying they will take whatever steps they need to to secure the money they're asking for, and that could be to sue them without any further talks or communication.

According to Chinese regulators, executives at Shenzhen didn't have the authority to enter into these contracts with J Aron, and so in October 2008 forced the company to terminate the contracts, which initiated the negotiations and ongoing battle between the two.

Le Wei, vice-chairman of China's State-Owned Assets Supervision and Administration Commission (SASAC), said recently that the contracts offered from J Aron were marketed "fraudulently" and with "evil intentions." Le Wei added that the derivatives contracts sold Shenzhen were "intentionally complex and highly leveraged."

As far as the specifics of the contract, Shenzhen leaders entered into deals which would reward them if oil were to remain above the price of $62 a barrel between March and December 2008.

What seems to have happened in this particular deal, is the Chinese took on what seemed to be a sure bet, as the price of oil in the early part of 2008 stood as high as $110 a barrel, reaching a high of $147.27 a barrel in July 2008.

But the price plunged in a relatively short time, plunging as low as $33 a barrel in December 2008. Almost 70 Chinese companies ran up losses close to $1.6 billion in oil hedging contracts with a number of foreign banks.

SASAC continue to backup Shenzhen in refusing to pay the money they allegedly owe to Goldman Sachs' commodity unit.

http://www.americanbankingnews.com/2010 ... -defaults/

============
Wizards of Magic Markets
Jul 19th, 2010 by Gabriela009

Quite a while ago I was surprised to see former AIG CEO Maurice "Hank" Greenberg beginning to threaten the giant Goldman Sachs. Very undiplomatically, Greenberg said Goldman were to blame for the crash of the subprime market, and subsequently, the transformation of AIG from an insurance titan into a poor and pathetic cartoon.

  Quite a while ago I was surprised to see former AIG CEO Maurice "Hank" Greenberg beginning to threaten the giant Goldman Sachs. Very undiplomatically, Greenberg said Goldman were to blame for the crash of the subprime market, and subsequently, the transformation of AIG from an insurance titan into a poor and pathetic cartoon. Nothing new, some would say, since similar allegations have already been in the media, many of them very well documented. But that did not stop God Blankfein personnel to keep on siphoning in search for huge profits.

  Many equidistant observers have noticed the malefic modus operandi of Goldman: they create a shiny bubble to attract the investors, and when the time is right, the bet (speculate) on a breakdown option. And because everything happens for a reason in this world, the bubble actually shatters, the profit of the brilliant bankers goes very high up in the skies, the docile employees are proud, while the shareholder are happy. This has been a perfect mechanism since the bank was created, still fully operational as we speak. What lies behind is a very old trick: manipulating the markets. When your name is Goldman Sachs, you have trains full of rich clients who read your reports like kids do Harry Potter. That enables you to set goals and precisely manipulate the immense lever of cash flows that follow you. So simple, yet, so effective.

  AIG is a notorious issue. Joe Cassano, the executive of Financial Products, from his London office, decided to enter the complex market of derivatives. He made his personal contribution - some suggest the angels of Morgan Stanley inspired him - to bring those to an even more complex and sophisticated level. This is how a department of only 400 employees managed to bury AIG. In addition, to dismiss all the personalities there was very expensive - Cassano alone "cost" ~ $315 million. The origins of the story are blurred. The big question was why AIG received such a massive support. The answer can be found in Goldman's greed: when the madness of derivatives started, Goldman had assets ensured for $20 billion, too much to throw away. And I say throw away because AIG reinsurers were obscure, undercapitalized companies, incapable to cover such a loss. But the big surprise is to come: among the shareholders of some of the reinsurers were famous names like... Goldman Sachs or Morgan Stanley. Some of those companies were registered in Bermudas Islands or other tax heavens. And that was not to hide from the intruding eye of SEC (Securities and Exchange Commission), but for fiscal optimization and other unorthodox fund manipulation techniques. It is like you are your own insurer, but in case of collapse, you force the government to pay you compensations. Well, maybe for you that would be impossible, but in their case, it actually happened!

  GS mechanisms are dreadfully simple: they speculate on growth, they force the growth - and the hysterical rush - and then they bet on trend reverse. Everything collapses. If something comes up and things do not go according to this algorithm, a benevolent decision maker will turn the tables. And if later, that decision maker will appear to have had at least one non-natural connection with Goldman, nobody should be upset because he actually saved the global economy from a total disaster.

  Another hilarious example of the precise predictions of GS was when a Chinese company - Shenzhen Nanshan Power - refused to pay compensations to a Goldman subsidiary - J. Aron & Company - for the loss after some uninspired transactions of international derivatives. This is not the first time when J.Aron is that smart, because many victims of such contracts are Chinese companies like Air China or Shenzhen Shennan Circuit Co. What they have in common is the price of oil, the biggest obsession of Chinese capital. At the beginning, all these contracts were signed under unfavorable terms for Goldman. But to everybody's surprise, after some exceptional volatility, Goldman won the option bet; in spite of the fact its position in the contract was less probable and totally marginalized. For those amazed at Goldman's fantastic precision, I have a little secret: Goldman, together with Morgan Stanley, Shell, BP, DB and Societe Generale founded Intercontinental Exchange (ICE) in 2000, an online market for commodities and futures contracts. That was an optimized platform for "dark pools", outside USA and outside the jurisdiction of SEC - dark pool activity must be reported to SEC if the market is in USA. With such a weapon, it is easy to guess where the intelligence for predicting the market trends comes from. Of course, it is a coincidence the two of the most important oil companies belong to this market. And it is another coincidence that the banks of this cartel were not really touched by the recession. A good question would be how many companies had to discard as a consequence of their predictions for the oil price.

http://www.bukisa.com/articles/320092_w ... ic-markets

[CrackSmokeRepublican]

http://www.usgs.gov/newsroom/article.asp?ID=1911

3 to 4.3 Billion Barrels of Technically Recoverable Oil Assessed in North Dakota and Montana's Bakken Formation—25 Times More Than 1995 Estimate
—
Released: 4/10/2008 2:25:36 PM
Contact Information:
U.S. Department of the Interior, U.S. Geological Survey
Office of Communication
119 National Center
Reston, VA 20192 Main Contact 1-click interview
Phone: N/A

Reston, VA - North Dakota and Montana have an estimated 3.0 to 4.3 billion barrels of undiscovered, technically recoverable oil in an area known as the Bakken Formation.

A U.S. Geological Survey assessment, released April 10, shows a 25-fold increase in the amount of oil that can be recovered compared to the agency's 1995 estimate of 151 million barrels of oil.

Technically recoverable oil resources are those producible using currently available technology and industry practices. USGS is the only provider of publicly available estimates of undiscovered technically recoverable oil and gas resources.

New geologic models applied to the Bakken Formation, advances in drilling and production technologies, and recent oil discoveries have resulted in these substantially larger technically recoverable oil volumes. About 105 million barrels of oil were produced from the Bakken Formation by the end of 2007.

The USGS Bakken study was undertaken as part of a nationwide project assessing domestic petroleum basins using standardized methodology and protocol as required by the Energy Policy and Conservation Act of 2000.

The Bakken Formation estimate is larger than all other current USGS oil assessments of the lower 48 states and is the largest "continuous" oil accumulation ever assessed by the USGS. A "continuous" oil accumulation means that the oil resource is dispersed throughout a geologic formation rather than existing as discrete, localized occurrences. The next largest "continuous" oil accumulation in the U.S. is in the Austin Chalk of Texas and Louisiana, with an undiscovered estimate of 1.0 billions of barrels of technically recoverable oil.

"It is clear that the Bakken formation contains a significant amount of oil - the question is how much of that oil is recoverable using today's technology?" said Senator Byron Dorgan, of North Dakota. "To get an answer to this important question, I requested that the U.S. Geological Survey complete this study, which will provide an up-to-date estimate on the amount of technically recoverable oil resources in the Bakken Shale formation."

The USGS estimate of 3.0 to 4.3 billion barrels of technically recoverable oil has a mean value of 3.65 billion barrels. Scientists conducted detailed studies in stratigraphy and structural geology and the modeling of petroleum geochemistry. They also combined their findings with historical exploration and production analyses to determine the undiscovered, technically recoverable oil estimates.

USGS worked with the North Dakota Geological Survey, a number of petroleum industry companies and independents, universities and other experts to develop a geological understanding of the Bakken Formation. These groups provided critical information and feedback on geological and engineering concepts important to building the geologic and production models used in the assessment.

Five continuous assessment units (AU) were identified and assessed in the Bakken Formation of North Dakota and Montana - the Elm Coulee-Billings Nose AU, the Central Basin-Poplar Dome AU, the Nesson-Little Knife Structural AU, the Eastern Expulsion Threshold AU, and the Northwest Expulsion Threshold AU.

At the time of the assessment, a limited number of wells have produced oil from three of the assessments units in Central Basin-Poplar Dome, Eastern Expulsion Threshold, and Northwest Expulsion Threshold.
The Elm Coulee oil field in Montana, discovered in 2000, has produced about 65 million barrels of the 105 million barrels of oil recovered from the Bakken Formation.

Results of the assessment can be found at http://energy.usgs.gov.

For a podcast interview with scientists about the Bakken Formation, listen to episode 38 of CoreCast at http://www.usgs.gov/corecast/.

[CrackSmokeRepublican]

One's standard of living immediately rises without "Jew Scams"...Black and White striped uniforms, numeric tattos, honest work, with the average Scam Jew concentrated and removed from any kind of "trading" -- all these things can immediately result in raising the gentile standard of living by about 47.93% when all factors are fully considered.

Why suffer the Jew Scams? Idiot Scam Jews like Loyd Blankfein should be eating gruel and working most simply with their hands at hard labor...it makes us free of their Talmudic Scams... --CSR
---------

Behind Oil Price Rise: Peak Oil or Wall Street    Speculation?

By: F. William Engdahl,* author of A Century of War: Anglo-American Oil Politics and the New World Order
March 17th, 2012
http://www.engdahl.oilgeopolitics.net/

Since around October last year, the price of crude oil on world futures markets has exploded. Different people have different explanations. The most common one is the belief in financial markets that a war between either Israel and Iran or the USA and Iran or all three is imminent. Another camp argues that the price is rising unavoidably because the world has passed what they call "Peak Oil"—the point on an imaginary Gaussian Bell Curve at which half of all world known oil reserves have been depleted and the remaining oil will decline in quantity at an accelerating pace with rising price.

Both the war danger and peak oil explanations are off base. As in the astronomic price run-up in the Summer of 2008 when oil in futures markets briefly hit $147 a barrel, oil today is rising because of the speculative pressure on oil futures markets from hedge funds and major banks such as Citigroup, JP Morgan Chase and most notably, Goldman Sachs, the bank always present when there are big bucks to be won for little effort betting on a sure thing. They're getting a generous assist from the US Government agency entrusted with regulating financial derivatives, the Commodity Futures Trading Corporation (CFTC).

Since the beginning of October 2011, some six months ago, the price of Brent Crude Oil Futures on the ICE Futures exchange has risen from just below $100 a barrel to over $126 per barrel, a rise of more than 25%. Back in 2009 oil was $30.

Yet demand for crude oil worldwide is not rising, but rather is declining in the same period. The International Energy Agency (IEA) reports that the world oil supply rose by 1.3 million barrels a day in the last three months of 2011 while world demand increased by just over half that during that same time period.Gasoline usage is down in the US by 8%, Europe by 22% and even in China. Recession across much of the European Union, a deepening recession/depression in the United States and slowdown in Japan have reduced global oil demand while new discoveries are coming online daily and countries like Iraq are increasing supply after years of war. A brief spike in China's oil purchases in January and February had to do with a decision last December to build their Strategic Petroleum Reserve and is expected to return to more normal import levels by the end of this month.

Why then the huge spike in oil prices?

Playing with 'paper oil'

A brief look at how today's "paper oil" markets function is useful. Since Goldman Sachs bought J. Aron & Co., a savvy commodities trader in the 1980's, trading in crude oil has gone from a domain of buyers and sellers of spot or physical oil to a market where unregulated speculation in oil futures, bets on a price of a given crude on a specific future date, usually in 30 or 60 or 90 days, and not actual supply-demand of physical oil determine daily oil prices.

In recent years, a Wall Street-friendly (and Wall Street financed) US Congress has passed several laws to help the banks that were interested in trading oil futures, among them one that allowed the bankrupt Enron to get away with a financial ponzi scheme worth billions in 2001 before it went bankrupt.

The Commodity Futures Modernization Act of 2000 (CFMA) was drafted by the man who today is President Obama's Treasury Secretary, Tim Geithner. The CFMA in effect gave over-the-counter (between financial institutions) derivatives trading in energy futures free reign, absent any US Government supervision, as a result of the financially influential lobbying pressure of the Wall Street banks. Oil and other energy products were exempt under what came to be called the "Enron Loophole."

In 2008 during a popular outrage against Wall Street banks for causing the financial crisis, Congress finally passed a law over the veto of President George Bush to "close the Enron Loophole." And as of January 2011, under the Dodd-Frank Wall Street Reform act, the CFTC was given authority to impose position caps on oil traders beginning in January 2011.

Curiously, these limits have not yet been implemented by the CFTC. In a recent interview Senator Bernie Sanders of Vermont stated that the CFTC doesn't "have the will" to enact these limits and "needs to obey the law." He adds, "What we need to do is...limit the amount of oil any one company can control on the oil futures market. The function of these speculators is not to use oil but to make profits from speculation, drive prices up and sell." While he has made noises of trying to close the loopholes, CFTC Chairman Gary Gensler has yet to do so. Notably,Gensler is a former executive of, you guessed, Goldman Sachs. The enforcement by the CFTC remains non-existent.

The role of key banks along with oil majors such as BP in manipulating a new oil price bubble since last Autumn, one detached from the physical reality of supply-demand calculations of real oil barrels, is being noted by a number of sources.

A 'gambling casino...'

Current estimates are that speculators, that is futures traders such as banks and hedge funds who have no intent of taking physical delivery but only of turning a paper profit, today control some 80 percent of the energy futures market, up from 30 percent a decade ago. CFTC Chair Gary Gensler, perhaps to maintain a patina of credibility while his agency ignored the legal mandate of Congress, declared last year in reference to oil markets that "huge inflows of speculative money create a self-fulfilling prophecy that drives up commodity prices." [ii] In early March, Kuwaiti Oil Minister Minister Hani Hussein said in an interview broadcast on state television, "Under the supply and demand theory, oil prices today are not justified."[iii]

Michael Greenberger, professor at the University of Maryland School of Law and a former CFTC regulator who has tried to draw public attention to the consequences of the US Government's decisions to allow unbridled speculation and manipulation of energy prices by big banks and funds, recently noted, "There are 50 studies showing that speculation adds an incredible premium to the price of oil, but somehow that hasn't seeped into the conventional wisdom," Greenberger said. "Once you have the market dominated by speculators, what you really have is a gambling casino." [iv]

The result of a permissive US Government regulation of oil markets has created the ideal conditions whereby a handful of strategic banks and financial institutions, interestingly the same ones dominating world trade in oil derivatives and the same ones who own the shares of the major oil trading exchange in London, ICE Futures, are able to manipulate huge short-term swings in the price we pay for oil or gasoline or countless other petroleum-based products.

We are in the midst of one of those swings now, one made worse by the Israeli saber-rattling rhetoric over Iran's nuclear program. Let me go on record stating categorically my firm conviction that Israel will not engage in a direct war against Iran nor will Washington. But the effect of the war rhetoric is to create the ideal backdrop for a massive speculative spike in oil. Some analysts speak of oil at $150 by summer.

Hillary Clinton just insured that the oil price will continue to ride high for months on fears of a war with Iran by delivering a new ultimatum to Iran on the nuclear issue in talks with Russian Foreign Minister Lavrov, "by year's end or else..." [v]

Curiously, one of the real drivers of the current oil price bubble is the Obama Administration's economic sanctions recently imposed on oil transactions of the Central Bank of Iran. By pressuring Japan, South Korea and the EU not to import Iranian oil or face punitive actions, Washington has reportedly forced a huge drop in oil supply from Iran to the world market in recent weeks, giving a turbo boost to the Wall Street derivatives play on oil. In a recent OpEd in the London Financial Times, Ian Bremmer and David Gordon of the Eurasia Group wrote, "... removing too much Iranian oil from the world's energy supply could cause an oil price spike that would halt the recovery even as it does some financial damage to Iran. For perhaps the first time, sanctions have the potential to be 'too successful,' hurting the sanctioners as much as the sanctioned."

Iran is shipping 300,000 to 400,000 a barrels a day less than its usual 2.5 million barrels a day, according to Bloomberg. Last week, the US Energy Information Administration said in a report that much of that Iranian oil isn't being exported because insurers won't issue policies for the shipments.[vi]

The issue of unbridled and unregulated oil derivatives speculation by a handful of big banks is not a new issue. A June 2006 US Senate Permanent Subcommittee on Investigations report on "The Role of Market Speculation in rising oil and gas prices," noted, "...there is substantial evidence supporting the conclusion that the large amount of speculation in the current market has significantly increased prices."

The report pointed out that the Commodity Futures Trading Trading Commission had been mandated by Congress to ensure that prices on the futures market reflect the laws of supply and demand rather than manipulative practices or excessive speculation. The US Commodity Exchange Act (CEA) states, "Excessive speculation in any commodity under contracts of sale of such commodity for future delivery . . . causing sudden or unreasonable fluctuations or unwarranted changes in the price of such commodity, is an undue and unnecessary burden on interstate commerce in such commodity." Further, the CEA directs the CFTC to establish such trading limits "as the Commission finds are necessary to diminish, eliminate, or prevent such burden."[vii]

Where is the CFTC now that we need such limits? As Senator Sanders correctly noted, the CFTC appears to ignore the law to the benefit of Goldman Sachs and Wall Street friends who dominate the trade in oil futures.

The moment that it becomes clear that the Obama Administration has acted to prevent any war with Iran by opening various diplomatic back-channels and that Netanyahu is merely trying to use the war threats to enhance his tactical position to horse trade with an Obama Administration he despises, the price of oil is poised to drop like a stone within days. Until then, the key oil derivatives insiders are laughing all the way to the bank. The effect of the soaring oil prices on fragile world economic growth, especially in countries like China is very negative as well.

Morgan Korn, Oil Speculators Must Be Stopped and the CFTC "Needs to Obey the Law": Sen. Bernie Sanders, Daily Ticker, March 7, 2012, accessed in http://finance.yahoo.com/blogs/daily-ti ... 03332.html

[ii] Ibid.

[iii] UpstreamOnline, Kuwait's oil minister believes current world oil prices are not justified, adding that the Gulf state's current production rate will not affect its level of strategic reserves, 12 March 2012, accessed in http://www.upstreamonline.com/live/article1236944.ece

[iv] Peter S. Goodman, Behind Gas Price Increases, Obama's Failure To Crack Down On Speculators, The Huffington Post, March 15, 2012, accessed in http://www.huffingtonpost.com/peter-s-g ... 46035.html

[v] Tom Parfitt, US 'tells Russia to warn Iran of last chance' , The Telegraph, 14 March 2012, accessed in http://www.telegraph.co.uk/news/worldne ... hance.html

[vi] Steve Levine, Obama administration brushes off oil price impact of Iran sanctions, Foreign Policy, March 8, 2012, accessed in http://oilandglory.foreignpolicy.com/po ... _sanctions

[vii] F. William Engdahl, 'Perhaps 60% of today's oil price is pure speculation', Global Research, May 2, 2008, accessed inhttp://www.globalresearch.ca/index.ph ... a&aid=8878.

By: F. William Engdahl,* author of A Century of War: Anglo-American Oil Politics and the New World Order
March 17th, 2012
http://www.engdahl.oilgeopolitics.net/

http://321energy.com/editorials/engdahl ... 31712.html

[CrackSmokeRepublican]

Looks like the Arab states have hired some independent auditors... and they found J-Tribers ripping off the world via Goldman Sachs, JPM and former innumerable smiling and grinning Jew Rip-off artists at Talmudic J. Aron & Co.  Yes, the criminal J-Tribers must be judged.  Looks like Mish overlooks this J. Aron & Co    factor below:  

-------
Saudi Arabia Aims to Deliver "Wall of Oil" to US; Oil Minister Says "High Oil Prices Unjustified" ; Highest March Price in History; Republicans Say Obama Not Doing Enough

Wall of Supertankers Heads For US

Brent crude at $125, US Crude at $110, and soaring gasoline prices everywhere have caused quite a stir. See Highest Price Ever of Gasoline in March; State-by-State Gas Price and Gas Tax Comparison for a discussion.

In response to high prices, Saudi Arabia has a plan to send a wall of supertankers to the U.S. to knock down prices and Republicans have attacked President Obama for not doing enough.

Please consider The price that launched a wall of ships

   

In a matter of days, Saudi Arabia has hired the largest number of super-tankers in years. When the tankers load their cargo in Ras Tanura, the world's largest oil terminal, in the next couple of weeks and start a 40-day voyage towards the US Gulf coast, they will deliver a wall of oil with a single aim: to bring prices down.

    "This is the first time in several years for [Saudi Arabia] to hit the market with such volume – and in such a short time frame," says Omar Nokta, a shipping expert at specialist investment bank Dalham Rose & Co.

    Last week, Vela, the shipping arm of Saudi Aramco, hired over a few days 11 so-called very large crude oil carriers, each capable of shipping 2m barrels, to deliver to US-based refiners. "In 2011, Vela fixed one VLCC to the US every other month," Mr Nokta says.

    The hiring spree was the most public move by the kingdom in a series of efforts aimed at bringing down oil prices from $125 a barrel towards $100. "They want to bring prices down. That is it," says a former Western oil official.

Saudi Oil Minister Says "High Oil Prices Unjustified"

Please consider Naimi calls high oil prices 'unjustified'

    Saudi Arabia's powerful oil minister Ali Naimi sought to cool overheating oil markets on Tuesday, saying high oil prices were "unjustified" and that the kingdom could boost its output by as much as 25 per cent if necessary.

    Supply was much more robust than it had been in 2008 when crude rose to $147 a barrel, he said.

    As the west's nuclear stand-off with Iran escalates, oil prices have rallied this month to a post-2008 peak of $128 a barrel with markets bracing for European Union sanctions on Iranian crude that could knock out a chunk of global supply. Jitters have been fuelled by supply outages in Syria, Yemen and South Sudan.
    High quality global journalism requires investment.

    Christine Lagarde, managing director of the International Monetary Fund, said on Tuesday that rising energy prices had now overtaken Europe's sovereign debt crisis as the biggest worry for the global economy. Speaking in New Delhi, she said that while the world financial system had strengthened over the past three months, volatile oil prices would have "serious consequences".

    But Mr Naimi insisted that supply was "much more firm today than in 2008", the time of the last big oil increase. Saudi Arabia had 2.5m b/d of additional production capacity, which it could bring online if necessary.
    Advertisement

    Saudi Arabia is likely to be producing about 9.9m b/d of oil in April and exporting roughly 7.5m-8m b/d of that, he said. Asked if the kingdom could ease prices by exporting more oil, he said customers were not asking for additional crude. "We are ready and willing to put more oil on the market, but you need a buyer," he said.

Republicans Say Obama Not Doing Enough

MarketWatch reports Republicans launch new attacks on Obama, Chu over gas prices

    Republicans launched fresh attacks on the Obama administration on Tuesday over the soaring price of gasoline, ripping the White House in an election-year bid for the upper hand with consumers.

    Testifying before the House Oversight and Government Reform Committee, Energy Secretary Steven Chu was peppered with questions about what the administration has done to bring down gasoline prices, which are now averaging $3.85 a gallon versus $3.55 a gallon a year ago.

    Republican presidential candidates Mitt Romney and Newt Gingrich have called for Chu to be fired as gasoline prices climb. On Tuesday, Gingrich released an ad highlighting Chu's September 2008 statement (retracted since he became head of the Energy Department) that he'd like to see gasoline prices at similar levels to Europe's and his support for the Chevrolet Volt.

    Gingrich — who competes against Romney, Rick Santorum and Ron Paul on Tuesday in the Illinois Republican primary — has touted a plan to bring gasoline prices down to $2.50 a gallon if elected president. The White House has criticized that plan as unrealistic.

    Obama has said that there's little that can be done from Washington in the short term to lower gasoline prices and that there's no "silver bullet" to bring them down in a global market.

Warmongering Fools    

Obama is essentially correct when he says "no silver bullet" on energy prices. Moreover, Gingrich is a fool if he really believes he can bring prices down that low without other devastating consequences such as a massive recession and 13% unemployment.

Finally, the leading Republican warmongers are angling for war with Iran, something sure to send oil prices to new highs should it happen. With $trillion deficits as far as the eye can see, the last thing the US needs to do is start another idiotic war, one likely to cause a supply shock sending gasoline prices over $5 if not much higher.

If you want a good reason for high gas prices, you can blame six things

    Fed policies – The Fed and its supporters in both political parties are to blame  
    Fractional Reserve Lending – The Fed is to blame  
    US Policy in the Mideast – Republicans other than Ron Paul will make matters worse  
    Deficit spending – both political parties are to blame  
    Warmongering – both political parties are to blame  
    Peak Oil    (J. Aron & Co)  

Drill Baby Drill is an inane response to those fundamental problems.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

[CrackSmokeRepublican]

Coverage of how Koch plays with J-Tribe J Aron and Company.  Oil prices are high because of Scamming Jews and the Shabbos Goyim Idiots (like Koch) that just let them "Scam" straight away... with Idiot Obama Puppets in the Whitehouse... it is all J-controlled for Jew Profit at your expense....---CSR

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Sun Mar 04, 2012 at 05:24 PM PST
About those "offshore tankers" that Koch Industries use to "to cash in" when the Price is Right

by jamess

This may be legal, but it sure isn't fair very patriotic.  

Much of what Enron did was legal too -- but it still caused little old grandmas to spend extra money, that they couldn't afford -- to heat their homes ... or in Koch Industries case, to drive their cars to the store ... with gas costing twice what it used to not so long ago.


How Koch Became An Oil Speculation Powerhouse
From Inventing Oil Derivatives To Deregulating The Market
by Lee Fang, ThinkProgress -- Jun 6, 2011

    In April, ThinkProgress caused a stir when we uncovered a series of Koch Industries corporate documents revealing the company's role as an oil speculator. Like many oil companies, Koch uses legitimate hedging products to create price stability. However, the documents reveal that Koch is also participating in the unregulated derivatives markets as a financial player, buying and selling speculative products that are increasingly contributing to the skyrocketing price of oil. Excessive energy speculation today is at its highest levels ever, and even Goldman Sachs now admits that at least $27 of the price of crude oil is a result from reckless speculation rather than market fundamentals of supply and demand. Many experts interviewed by ThinkProgress argue that the figure is far higher, and out of control speculation has doubled the current price of crude oil.
    [...]

      --  1990-1992: Koch, along with several oil companies and Wall Street speculators, form a coalition lobbying group to deregulate oil speculation. A coalition called "The Energy Group" is organized to press the Commodity Futures Trading Commission (CFTC) to allow oil derivatives to be traded off the NYMEX or any other regulated exchange. Participants in the coalition  include Koch, Enron, Phibro (a powerful commodity speculator firm recently sold from Citigroup to Occidental Petroleum), J. Aron & Co (a commodity trading division of Goldman Sachs), BP, and other    companies.  

    [...]
      --  2010: Koch's Tea Party front groups and lobbyists fight financial reforms designed to reign in the unregulated energy market.  While Americans for Prosperity, as well as other Koch fronts, decry the Wall Street reform bill debated in Congress, Koch lobbied  to water-down provisions of the bill related to derivatives. The sweeping Dodd-Frank reform bill contained broad new powers for the CFTC to crack down on excessive oil speculation, while also requiring that derivative are eventually traded on a regulated and open exchange.
    [...]


Meet the New Oil Bosses, same as the Old Oil bosses ... CFTC is still stalling on implementation of their new speculation oversight duties too, or so I've read recently.  I hope this changes soon.



The Campaign Manager for Barack Obama recently mentioned the fact that:

Koch Industries has enriched itself by keeping oil off the market, storing it in offshore tankers and waiting to cash in when the cost of oil rises.

Here's how that oil price-raising scheme works, as once again revealed by Lee Fang of ThinkProgress last year.

The Tanker-shell game is call "Contango," as explained by a Koch CEO ...

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The Contango Game: How Koch Industries Manipulates The Oil Market For Profit
by Lee Fang, thinkprogress -- Apr 13, 2011

    While much of the attention on oil speculators has rested on the backs of investors and commodity traders, the petrochemical conglomerate Koch Industries occupies a unique role in manipulating the oil market. Koch has little business in the extraction process. Instead, Koch focuses on shipping crude oil, refining it, distributing it to retailers — then speculating on the future price. With control of every part of the market, Koch is able to bet on future prices with superior information. As Yasha Levine notes, Koch along with Enron pioneered a number of complex financial products to leverage its privileged position in the energy industry.

    In 2008, Koch called attention to itself for "contango" oil market manipulation. A commodity market is said to be in contango when future prices are expected to rise, that is, when demand is expected to outstrip supply. Big banks and companies like Koch employ a contango strategy by buying up oil and storing it in massive containers both on land and offshore to lock in the oil for sale later at a set price. In December of 2008, Koch leased "four supertankers to hold oil in the U.S. Gulf Coast to take advantage of rising prices in the months ahead." Writing about Koch's contango efforts to artificially drive down supply, Fortune magazine writer Jon Birger noted they could be raising "gasoline prices by anywhere from 20 to 40 cents a gallon" at the time. Speaking with the Business Times, Koch executive David Chang even boasted that falling crude prices in 2008 provided an opportunity remove oil from the market for future delivery:

           CHANG: The drop in crude oil prices from more than US$145 per barrel in July 2008 to less than US$35 per barrel in December 2008 has presented opportunities for companies such as ours. In the physical business, purchases of crude oil from producers and storing offshore in tankers allow us to benefit from the contango market where crude prices are higher for future delivery than for prompt delivery.
---------

So much for letting the Free Market work its invisible magic. So much for giving consumers "the best product for the best price" -- a key concept on which Consumer Capitalism is supposed to be based.  If it is supposed to work, to the benefit of all the people, that is.

If the Kochs have the capacity to "wait it out" and financial instruments and "storage capacity" to "pick and choose" when they "bring their product to market" -- is it any wonder they have become the Billionaire Oil Tycoons that they have become.  All the while, the rest of the consuming public has to just sit by and take it, as these Oil Baron's speculative bets, work to "keep supplies down," and send the price of a gallon of gas skyward.  

Rising Gas Prices ... all supposedly because of "the LACK of production capacity" as they repeat ad-nauseum on Fox News and CNBC.  Very curious.  Capacity seems not to be the problem, rather it's "Delivery" to market gumming up the works.  Thanks to the 'Energy Group' oil coalition.


Is it any wonder that President Obama wants to halt tax-payer-paid Oil Subsidies to Big Oil -- it's not like they need the extra help, tapping into our wallets now, do they?   They seem to have that one all figured out.  Almost down to a science, it would seem.

Just another expensive day, paying homage to the Industrial Age.  This is sure getting old.  No wonder the Occupy movement has legs -- about a million of them, and counting.



Originally posted to Digging up those Facts ... for over 5 years. on Sun Mar 04, 2012 at 05:24 PM PST.

http://www.dailykos.com/story/2012/03/0 ... e-is-Right

[CrackSmokeRepublican]

More J-Triber Shystering  from 1999....until today... if you really want to know how the G-D'ned Jews are doing this... it is useful to consider OPEC and what the Jews and Oil companies want to do to it as a "Political" entity... they want to take out OPEC's pricing power.  The Saudis are willing to send over an ocean of oil but it will never reach the pumps at a "fair" price.... because Israeli-Jew interests are in the way... "Zionism" and Jewish Speculators add over $1.50 at the pump for the average Goyim Globally...     --CSR

http://www.financialsense.com/contribut ... ice-of-oil

The Price of Oil When OPEC Is Powerless

Let's imagine for a moment that OPEC could, if it chose to, pour an extra 3 mbpd of oil on the world market. And that by doing so, it could lower the price of WTIC oil to $90 or less. What would that accomplish? And for how long would such "lower" prices last?

-----------
Investment Banks Seek Supertankers for Contango Trade (Update1)    
By Alaric Nightingale - January 9, 2009 11:08 EST
 

Jan. 9 (Bloomberg) -- Investment banks want to hire supertankers to store crude oil at sea, seeking to profit as futures contracts get more expensive later in the year, according to Frontline Ltd., the largest owner of the ships.

A few banks are asking about Frontline's vessels, Jens Martin Jensen, the Singapore-based interim chief executive officer of its management unit, said by phone today.

The banks, which tend not to hire ocean-going tankers, are seeking to profit from a market situation called contango where futures prices are higher than the cost of immediate supplies. A purchaser could buy oil now, keep it for months at sea and fetch better prices by selling oil futures that are higher than the spot price.

"There's a window of opportunity right now and it could last some time," said Sverre Bjorn Svenning, a director at Fearnleys A/S, an Oslo-based shipbroker and consultant. Shipping costs could triple as a result and eventually bring an end to the trade, he said.

The companies exclude Citigroup Inc., Jensen said, declining to identify them. Its Phibro LLC commodities trading unit has the 1 million-barrel Ice Transporter stationed off northern Scotland, according to people familiar with the matter. Hedge funds aren't trying to conclude such deals, Jensen said.

'Significant Returns'

Morgan Stanley owns half of Heidmar Inc., a company that operates oil tankers on behalf of groups of owners. Goldman Sachs Group Inc. trades commodities through J. Aron & Co. Barclays Capital noted the potential for profit as early as November, saying in a report that traders could make "significant returns" by storing oil and copper.

Heidmar hasn't had demand for its tankers to store oil, probably because the vessels aren't the largest supertankers that presently make the trade attractive, Tim Brennan, the company's chief executive, based in Norwalk, Connecticut, said by phone yesterday.

The pricing structure has been caused by excess near-term oil supply as demand slows, and speculation that output cuts by the Organization of Petroleum Exporting Countries will reduce the glut later this year.

The cost of storing on supertankers works out at about 80 to 90 cents a barrel each month, Denis Petropoulos, head of tankers at Braemar Shipping Services Plc, the world's second-largest publicly traded shipbroker, said Jan. 7.

Hoarding at Sea

West Texas Intermediate crude oil futures for March delivery are trading at $45.98 a barrel, about $4.78 more than the February contract.

Frontline's Jensen said Jan. 7 that oil traders wanted as many as 10 very large crude carriers, or VLCCs, to hoard oil for between three and nine months. That would take the amount being kept at sea to the equivalent of almost five days of European Union demand.

Iran, OPEC's second-largest member after Saudi Arabia, idled as many as 15 of its biggest ships in May to store crude. That contributed to three consecutive months of higher rental rates for ships.

Commodities prices fell the most in five decades last year, with crude dropping more than $100 from the peak of $147.27 a barrel in July, as simultaneous recessions hit the U.S., Europe and Japan. Oil demand in 2008 fell for the first time since 1983, according to the Paris-based International Energy Agency.

To contact the reporter on this story: Alaric Nightingale in London at swallace6@bloomberg.net

http://www.bloomberg.com/apps/news?pid= ... 4nlifTEYjw

[CrackSmokeRepublican]

How to Trade (or Dance) the Oil Contango
January 24, 2011  |  includes: BHI, BNO, BP, CVX, ESV, HAL, NE, OIH, OIL, RDS.A, RIG, SLB, TOT, UGA, UHN, USO, XOM, XOP

There are two key issues in the oil market these days: 1) Why is the contango in WTI futures so persistent, and 2) Why is there an $8 premium of Brent crude relative to WTI, which is a lighter, sweeter (i.e. traditionally more expensive) oil? The usual discount of Brent to WTI ($1 to $2 per barrel) seems a thing of the distant past.

Various arguments are presented: Canadian pipelines coming on stream, a Valero refinery shutdown, full storage tanks in Cushing, Okla., (the delivery point for WTI) etc.

I'll offer a different view. Crude oil prices are high all over the world: Brent, Dubai, Indonesia, Nigerian Bonny Light. All are close to or already above $100 a barrel. Only WTI seems to lag. The Friday close on Nymex was $89.11 a barrel.

The common wisdom is that speculators can affect the price of oil.    Indeed, speculators are often blamed for the run up in prices whenever they are high. But maybe it's the speculators who are to blame for the low price of WTI. Maybe all those institutions dumping the front month contracts to get out of having to take delivery are depressing the price of WTI delivered in Cushing, Okla., relative to other world crudes, to the benefit of Midwest refiners. Just a thought.

WTI has a significant contango that seems almost constantly stuck with us. And yet there is no contango in Brent, no contango apart from normal seasonality is wholesale gasoline, no contango apart from normal seasonality in heating oil.

What does this mean for investors? Well, first of all, avoid USO and OIL like the plague. These ETF's are being crushed by the continual need to roll over their contracts to the front month. Their performance over the past year relative to other oil investments has been very disappointing. Second, focus on the smaller less liquid instruments not favored by the big institutions. These include Brent crude (no contango), the ETF is BNO; wholesale gasoline (again no contango apart from normal seasonality), the ETF is UGA; and heating oil (again only normal seasonality), the ETF is UHN.

Sure, if you think oil is headed higher due to higher oil prices, you could buy drillers like Transocean (RIG), Baker Hughes (BHI), Noble (NE) and Ensco (ESV). You could buy the oil service companies Halliburton (HAL) and Schlumberger (SLB) or the ETF OIH. You could buy the smaller exploration and production companies (easiest done through the ETF XOP. There are always the majors: Exxon Mobil (XOM), Chevron (CVX), BP (BP), Shell (RDS.A) and Total (TOT). But these investment vehicles are stocks, and while they will benefit from higher oil prices, they will trend downward or sideways in a bear market, should this year give us another one, entirely possible given the pricey nature of the overall market and the uncertain economic outlook.

Investors wanting a pure commodity play on the oil market have options apart from the usual suspects, which have severely lagged crude oil prices, not to mention the prices you and I pay at the pump.

Disclosure: I am long XLE, XOP, OIH, UGA, BNO.

http://seekingalpha.com/article/248244- ... l-contango


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More oil is put into storage, waiting for prices to rise

Record contango pushes up oil inventories; Cushing stockpiles at their highest
January 12, 2009|Moming Zhou, MarketWatch

NEW YORK (MarketWatch) -- Oil producers, refiners and investors have put a record amount of crude oil into storage at a key delivery point as they try to profit from an unusual form of "super contango" that indicates the market expects prices to rise sharply by summer.

Inventories in Cushing, Okla., the delivery point for futures traded on the New York Mercantile Exchange, have jumped more than 40% in the month ended Jan. 2 to the highest level since at least April, 2004, when the government started collecting Cushing data.

Such stockpiling reflects the wide gap between the price of oil for delivery in the next month and contracts to deliver oil later this spring and summer. On Monday, oil for February delivery closed at $37.59 a barrel on the Nymex, or nearly $15 lower than July's contract price. Read more on oil prices.

This situation, where the price of a near-term future contract is worth less than oil for delivery in several months, is called contango. It's the norm in oil markets, with the price gap representing the cost of storing the oil and locking up investors' money.

But such a distance between contracts is unusual, sparking industry insiders to term the phenomenon -- which reached an apex in late December - "super contango."

When the price spread is greater than the storage cost, "there is an opportunity to arbitrage at a profit without risk," said James Williams, an economist at energy research firm WTRG Economics.

This gap between near-term and far-off future prices partly reflects current sluggish demand and expectations that demand will pick up in the following months. At less than $38 a barrel, oil is currently trading nearly $110 lower than its record high hit in July.

So instead of selling oil at a depressed price amid sluggish demand, more producers and investors are hoarding oil for future sales.

Those stockpiles are showing up in ballooning inventories at Cushing.

"When the market flips into contango, meaning the current month is less expensive than the month going forward, people start putting crude into storage," said Jeff Mower, editor-in-chief at Platts Oilgram Price Report.

Contango "creates a financial incentive to store more barrels."

And as the current contango widens, as analysts say is likely, Cushing could run out of room.

Maximum storage capacity in Cushing is about 42.4 million barrels, but only about 80%, or roughly 34 million barrels, of that is operable storage space, says Linda Rafield, senior analyst at Platt. With 32.182 million barrels now sitting in Cushing, the market appears poised to test the limits of storage capacity there.

Traders will get more information on oil stockpiles in the U.S. government's weekly energy report Wednesday.

Super contango

The ongoing economic turmoil has pummeled oil prices and created record levels of contango. On Dec. 19, the expiring January contract ended at $33.87 a barrel, $8.49 lower than the February contract. That's the widest contango between two successive months' contracts, according to Platts.

With a price gap that big, oil investors can pocket lucrative profits by simply buying the January contract, taking the physical oil delivery and storing it, and at the same time selling contract under the higher-priced February contract. When that contract expires, they can deliver the oil they've had in storage since January.

Meanwhile, the oil storage business has thrived as energy players sock away plentiful crude to wait out the current price trough.

Bruce Macphail, director of contract terminals at Enbridge, said the company's 15.5 million barrel storage capacity at Cushing is nearly full. He said the company holds contracts with a variety of energy companies ranging in length from six months to several years. Read more on oil storage.
Rising inventories

Beyond Cushing, oil stockpiles are also on the rise across the nation.

Total U.S. commercial inventories, or oil held by producers, refineries and other users, jumped 6.7 million barrels in the week ended Jan. 2 from a week ago to hit 325.4 million, the highest level since May, 2008.

Refineries, meanwhile, are scaling back their production to wait for demand and prices to rise. U.S. refineries operated at 82.5% of their totally capacity of 17.6 million barrels a day at the end of last year, the lowest utilization rate since October, 2008.

Futures markets indicate gasoline prices will rise in the following months. On the Nymex, the September reformulated crude contract closed at $1.3506 Monday, or 25% higher, than the February contract.

At the pump, regular gasoline averaged at $1.79 a gallon Monday, up 13 cents from a month ago, according to AAA's Daily Fuel Gauge Report.

[CrackSmokeRepublican]

Gold and the same with Oil and NG... --CSR
-------
 

Arbitrage: How did J. Aron & Company make money arbitraging gold?
"The Partnership: The Making of Goldman Sachs" by Charles D. Ellis mentions that J. Aron & Company had an incredibly easy method of making money through gold arbitrage. I know that this method is likely deprecated, but I am still interested in what they did, why it was so easy, and why no one else was doing it.
 
Marwan Mansour, Oil & Gas, Technology
1 vote by John H. Hillman, V
This is not new at all. The Rothchild's arbitraged gold between london and Paris during the Napeloanic wars and made at the time phenomnenal profits that make Soros sterling trade profit look small by comparison of today's value of money.  arbitrage is all about information superiority.

http://www.quora.com/Arbitrage/How-did- ... aging-gold


http://articles.businessinsider.com/201 ... ock-demand

[CrackSmokeRepublican]

Expensive energy is the the last Global Jew Ripoff in town. You are overpaying for energy because of Scam Jews in NY-London-Caymans.  -- CSR

--------
 

What Recovery? Petroleum Deliveries Lowest Since September 2008; Weakest July Demand Since 1995

Submitted by Tyler Durden on 08/17/2012 15:50 -0400



While the Achilles heel to the endless "economic data" BS coming out of China may be its electric production and demand, both of which show a vastly different picture than what the Beijing politburo's very wide brush strokes paint, the US itself is not immune from indicators that confirm that anything the BEA dishes out should be taken with a grain of salt. One data set that we showed recently that paints a drastically different (read slowing) picture of the US economy which we noted recently is rail car loading of waste and scrap for the simple reason that "The more we demand, the more waste is generated by that production." Of course, the propaganda manipulation machinery only focuses on the "entrance" of production, and completely ignore the "exit." But an even far more important metric of the general health of the US economy may be none other than broad energy demand, in the form of petroleum deliveries and gasoline demand. If this is indeed the relevant metric to observe, then things are about to get far, far worse. As Dow Jones notes: "U.S. petroleum deliveries, a measure of demand, fell by 2.7% in July from a year earlier to the lowest level in any month since September 2008, the American Petroleum Institute, an industry group, said Friday." It gets worse: "Demand in the world's biggest oil consumer, at 18.062 million barrels a day, was the weakest for the month of July since 1995, the API said. Year-to-date demand is down 2.3% from the same period in 2011."

Did Americans forget to drive?

Demand for gasoline, the most widely used petroleum product, dropped 3.8% from a year earlier, to 8.624 million barrels a day, the lowest July level since 1997. Gasoline use in the heart of the peak summer driving season was 2.2% lower than in June. January-July gasoline demand averaged 1.1% below a year earlier, at 8.671 million barrels a day, the API said.

Oh well, maybe Americans just decided to take the peak driving period of the summer season off for some reason. Demand for other distillates would still be high... assuming the economy was chugging along. Yes. And no.

    Kerosine-based jet fuel use fell 0.8% in July from a year ago, to 1.455 million barrels a day, while demand for heavy residual fuel, used in power plants and industrial burners, dropped 7.1% year-on-year, to 294,000 barrels a day.

One would think that with collapsing demand, for whatever reason, the production side would slide as well, especially since the price of WTI is soaring and is back to just shy of $100, causing the Margin Hiker-in-Chief to grumble. One would be wrong.

    Production of all four major products--gasoline, distillate, jet fuel and residual fuel--was greater than demand for those products. As a result, petroleum imports decreased and exports increased. Total imports of crude and refined products fell by 9.6% to average 10.4 million barrels a day in July. Exports of refined products increased 11.1% to a record high for July of 3.244 million barrels a day, and year-to-date exports were up 14% compared with the same period in 2011.

    Refineries operated at 92.7% of capacity in July, the second month in a row above 90%.

    Crude oil production rose 13.6% year on year in July to 6.225 million barrels a day, the highest July level since 1998. Year-to-date output averaged near the July level and was up 11.9% from the same period in 2011.

But, how is it possible than in light of collapsing demand in the world's marginal consumer of gasoline, that crude prices are not only flat, but have in fact entered a bull market in the past 3 months? Simple: we wrote about it in "Monti's bluffing unleashes bull market in crude."

What was the bluffing? Simple - that no matter what happens, Draghi will print. At least now we know who all those 'evil speculators' are that Obama bashes every time unleaded approaches $4.00 and Brent reaches fresh record highs in EUR terms. Such as now.

As for what all this means for the economy, the API chief economists summarizes it best.

    "While retail sales for July are up and housing has improved, the weak petroleum demand numbers are a strong indication the economy is still faltering," said John Felmy, API chief economist. "Unfortunately, achieving robust growth will likely continue to be an uphill climb given the nation's fiscal challenges, business uncertainty, and a European economy in jeopardy of sliding back into recession."

It also means fresh all time highs in the S&P. Why? Because.

http://www.zerohedge.com/news/what-reco ... emand-1995

[CrackSmokeRepublican]

Commodity Traders: The trillion dollar club

Analysis & Opinion

By Joshua Schneyer

NEW YORK | Fri Oct 28, 2011 1:26pm EDT

NEW YORK (Reuters)- For the small club of companies who trade the food, fuels and metals that keep the world running, the last decade has been sensational. Driven by the rise of Brazil, China, India and other fast-growing economies, the global commodities boom has turbocharged profits at the world's biggest trading houses.  

They form an exclusive group, whose loosely regulated members are often based in such tax havens as Switzerland. Together, they are worth over a trillion dollars in annual revenue and control more than half the world's freely traded commodities. The top five piled up $629 billion in revenues last year, just below the global top five financial companies and more than the combined sales of leading players in tech or telecoms. Many amass speculative positions worth billions in raw goods, or hoard commodities in warehouses and super-tankers during periods of tight supply.

U.S. and European regulators are cracking down on big banks and hedge funds that speculate in raw goods, but trading firms remain largely untouched. Many are unlisted or family run, and because they trade physical goods are largely impervious to financial regulators. Outside the commodities business, many of these quiet giants who broker the world's basic goods are little known.

Their reach is expanding. Big trading firms now own a growing number of the mines that produce many of our commodities, the ships and pipelines that carry them, and the warehouses, silos and ports where they are stored. With their connections and inside knowledge -- commodities markets are mostly free of insider-trading restrictions -- trading houses have become power brokers, especially in fast-developing Asia, Latin America and Africa. They are part of the food chain, yet help shape it, and the personal rewards can be huge. "The payout percentage of profits at the commodities houses can be double what Wall Street banks pay," says George Stein of New York headhunting firm Commodity Talent.

Switzerland-based Glencore, whose initial public offering (IPO) in May put trading houses in the spotlight, pays some traders yearly bonuses in the tens of millions. On paper, the partial float made boss    Ivan Glasenberg $10 billion richer overnight.

SIZE MATTERS

How big are the biggest trading houses? Put it this way: two of them, Vitol and Trafigura, sold a combined 8.1 million barrels a day of oil last year. That's equal to the combined oil exports of Saudi Arabia and Venezuela.  

Or this: Glencore in 2010 controlled 55 percent of the world's traded zinc market, and 36 percent of that for copper.

Or this: publicity-shy Vitol's sales of $195 billion in 2010 were twice those at Apple Inc. As well as the 200 tankers it has at sea, Vitol owns storage tanks on five continents.

U.S. regulations are now pending to limit banks' proprietary trading -- speculating with their own cash. The new rules don't apply to trading firms. "Trading houses have huge volumes of proprietary trading. In some cases it makes up 60-80 percent of what they do," said Carl Holland, a former price risk manager at oil major Chevron Texaco, who now runs energy consultancy Trading Solutions LLC in Connecticut. "They have the most talent, the deepest pockets, and the best risk management."

In addition to proprietary trading curbs, the U.S. regulator voted on October 19 to impose position limits in oil and metals markets. That gives banks who trade futures cause for concern, but since physical players usually receive exemptions to limits -- because they are categorized as bona fide hedgers -- trading firms should go unscathed.

The trading houses' talent and deep pockets translate into incredible power. "Most commodity buyers in the world are price takers. The top trading firms are price makers," said Chris Hinde, editor of London-based Mining Journal. "It puts them in a tremendous position."

The sort of position that has allowed Vitol to do a brisk oil business with the U.S. government, the besieged Syrian regime, and Libya's newly empowered rebels simultaneously over the past few months. In April the company dodged NATO bombs and a naval blockade and sent an oil tanker into the battered Mediterranean port of Tobruk to extract the first cargo of premium crude sold by rebels at the helm of a breakaway Libyan oil company defying Muammar Gaddafi.

Vitol also discreetly supplied Libya's rebels with $1 billion in fuel, Reuters has learned -- supplies they desperately needed to advance on Tripoli. Vitol's early running gave the firm an edge with the country's new political stewards. As it turns the pumps back on, Libyan oil firm Agoco has allocated Vitol half of its crude production to repay debts.

While its savvy traders were doing deals in eastern Libya, Vitol, along with rival Trafigura, kept refined product supplies flowing to the besieged government of Bashar al-Assad in Syria as his troops attacked civilians. Trading houses were able to do this because international sanctions on Syria do not ban the sale of fuel into the country, but they did not have to fight off much competition for that business.

PAST SCRUTINY

Despite a relative lack of regulatory oversight, such reach does attract scrutiny. "There has always been some concern about the trading firms' influence," said Craig Pirrong, a finance professor and commodities specialist at the University of Houston, who points out that some firms "have been associated with allegations of market manipulation".

Public and regulatory attention usually rises with prices. A spike in world food prices in 2007 stirred an outcry against the largest grain trading firms; when oil prices surged to a record $147 a barrel in 2008, U.S. Congress probed the role of oil trading firms, but found no smoking gun. But in May the U.S. Commodity Futures Trading Commission sued Arcadia and Parnon, both owned by a Norwegian shipping billionaire, for allegedly manipulating U.S. oil prices three years ago, amassing millions of barrels they had no intention of using. The companies dispute the charges.

Some transgressions make headlines. A Trafigura-chartered tanker was intercepted in the Caribbean in 2001 on suspicion of carrying illegal volumes of Iraqi crude. In a settlement, Trafigura agreed to pay a $5 million fine, but wasn't charged with smuggling and denied wrongdoing. In 2006 a tanker it chartered dumped toxic waste in Ivory Coast, allegedly making thousands ill and killing up to 16. Courts did not find any connection between its waste and sick people. Trafigura took legal action to keep a report about the Ivory Coast incident out of newspapers, but details were eventually made public.

And it's not just the Europeans. Executives of Illinois-based ADM, formerly Archer Daniels Midland, were jailed for an early 1990s international price-fixing conspiracy for animal feed additive lysine. After Minnesota-based Cargill built a huge soybean terminal on the banks of the Amazon River in 2003, it was targeted by Greenpeace and subjected to Brazilian government injunctions for allegedly encouraging more farming in fragile rainforest. Cargill has since placed a moratorium on buying soybeans from newly deforested land.

THE SQUEEZE AND THE ARB

For many commodities traders, the most profitable ploy has been the squeeze, which involves driving prices up or down by accumulating a dominant position. In the early 2000s, the Brent crude oil stream -- used as a global price benchmark -- fell to 400,000 barrels per day from more than 1 million in the late 1980s. A few traders seized the chance to buy what amounted to almost all the available supply. Price premiums for immediate supply spiked, sapping margins for refiners worldwide. U.S. refiner Tosco sued Arcadia and Glencore for market manipulation; the case was settled out of court.

In metals, stock in warehouses can be tied up for years as loan collateral, allowing the same traders who dominate the metals market to control a huge chunk of world supply -- an apparent conflict of interest that has drawn criticism from the UK parliament.

"The warehouses seem to have an infinite capacity to absorb metal, but a very small capacity to release it," said Nick Madden of Novelis, the world's top rolled aluminum producer.

Trading houses saw the opportunity to leverage metals warehousing after the 2008 financial crisis. Of the six major metals warehousers only one, Dutch-based C.Steinweg, remains independent. Trading houses competed with banks for the spoils -- Glencore, Trafigura and Noble took one warehousing company each, Goldman and JP Morgan the others.

And unlike commodities producers, such as U.S. oil giant Exxon Mobil, trading firms don't just make money when prices go up. Most rely on arbitrage -- playing the divergence in prices at different locations, between different future delivery dates, or between a commodity's quality in different places.

That's what Koch, Vitol and others did in 2009 when they parked 100 million barrels of oil in seaborne tankers. Thanks to a market condition known as contango -- a period when buyers pay more for future delivery than to receive their cargoes promptly -- they could sell futures and lock in profits of $10 a barrel or more.

RICH HISTORY

Many of the biggest players in oil and metals trading trace their roots back to notorious trader Marc Rich, whose triumph in the 1960s and 70s was to create a spot market for oil, wresting business away from the majors.

Belgium-born Rich joined Philipp Brothers, subsequently Phibro, aged 20, leaving in 1974 with a fellow graduate of the Phibro mailroom, Pincus "Pinky" Green, to set up Marc Rich and Co AG in Switzerland.    

Rich, now 76, would later end up on the FBI's most-wanted list for alleged tax evasion and trading oil from Iran after the revolution in 1979. He was later pardoned. His partners seized control of the firm in 1994, renaming it Glencore.

Several big trading houses are still family-held -- firms like agricultural giant Cargill, the top private U.S. company, or Kansas-based Koch Industries, a close No. 2. Koch's chief executive Charles Koch, a libertarian activist with a $22 billion personal fortune according to Forbes, has said his company would go public "over my dead body". "The thinking is, why open the books to the world?" said a former lobbyist for Koch who requested anonymity. "Koch benefits from privacy, and it's astonishingly agile and profitable as is."

The old guard now faces a challenge from a new breed of Asian competitors. Companies like Hong Kong-based Noble and Singapore's Olam and Hin Leong are not new, but they are spreading their wings as China's influence in commodities markets increases. Chinese state funds have flowed into Noble and private Asian traders. As China's clout grows, it's very likely that Chinese firms will build trading dynasties of their own. In a move borrowed from the playbooks of western rivals, state-run oil firm PetroChina has set up a Houston oil trading desk and leased massive oil storage tanks in the Caribbean. "China is becoming more like a Glencore," said Hinde. "The Chinese state is funding nimble trading firms to do its bidding. We don't hear much about them yet, but in time we will."

Here's a look at the 16 companies, with aggregate revenues of $1.1 trillion, that trade energy, metals and agriculture.

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SAILING CLOSE TO THE WIND

WHO: Vitol, founded 1966 in Rotterdam by Henk Vietor and Jacques Detiger

WHERE: Geneva and Rotterdam WHAT: Oil, gas, power, coal, industrial metals, sugar

TURNOVER: $195 billion (2010) CEO: Ian Taylor STAFF: 2,700

By Richard Mably

On the world oil markets the name Vitol is as familiar as Exxon is at the petrol pump.

In public, for a company that turned over almost $200 billion last year trading 5.5 million barrels a day, its profile is nigh on subterranean.

But earlier this year the world's wealthiest oil trader raised that profile, and did its reputation no harm, by becoming the first to deal with Libya's rebels, long before the overthrow of Muammar Gaddafi.

That helped balance the reputational damage of being fined -- along with many other companies -- for paying surcharges a decade ago to Saddam Hussein's Iraqi oil ministry during the U.N. oil-for-food program.

Vitol's Saddam connection does not seem to have hurt it in Iraq. It became the first company to supply gasoline to the energy ministry after the war in 2003, and now is both a buyer of Iraqi crude and supplier of refined products.

An array of storage tanks on five continents oils the wheels of its vast trading operation and it has stepped into the gap left by the oil majors as they reduce their downstream presence to focus on upstream exploration and production.

With African investors Helios Investment it recently paid a billion dollars to buy Shell's fuel marketing operation across 14 West African countries, keeping the Shell branding.

It has also dipped a toe in the upstream business. Together with Glencore, it pre-qualified to bid for exploration rights in Iraq in a licensing round next year that that could add the Iraqi upstream to its offshore West Africa operations.

Its early dealings with the Libyan rebels may offer the chance of a foothold in Libya's oil and gas territory.

"Vitol's goal was to supply the refined products and then try to pick up upstream assets in Libya," said a western diplomatic source.

Glencore's flotation has sparked speculation about a possible Vitol initial public offering and what it would be worth. Vitol says it is happy with its private status and has no IPO plans.

By annual revenue Vitol is richer than Glencore but the numbers aren't directly comparable -- Glencore owns more hard assets which, typically, are far more profitable than trade turnover.

Vitol's wealth is spread across only 330 share-holding employees, fewer than Glencore's 500. While Vitol would not comment, industry talk has it that none of its senior employees, including CEO Ian Taylor who joined from Shell in 1985 or long-timer Bob Finch who heads Vitol's coal business, holds more than 5 percent of the company. That would put them well below the 16 percent stake Glencore CEO Ivan Glasenberg owns in his firm.

The company's deal with Libya's rebels was a gamble. Sanctions targeted Gaddafi. The firms now controlled by the western-backed rebels might still legally be linked to Libya's national oil corporation. Was Vitol in violation? Lawyers said doing business with the rebels still required great care. But by the end of April, a U.S. Treasury directive authorized the Vitol transactions.

"They sail as close to the wind as they possibly can legally," said an oil analyst who requested anonymity. "That's the nature of their business."

(additional reporting Barbara Lewis)

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PRIVATE TO PUBLIC

WHO: Glencore, founded 1974 as Marc Rich and Co. renamed Glencore in 1994  

WHERE: Baar, Switzerland WHAT: Metals, minerals, energy, agricultural products

REVENUE: $145 billion in 2010 CEO: Ivan Glasenberg

STAFF: 2,800 people directly; 55,000 at Glencore's industrial assets

By Clara Ferreira Marques

Switzerland-based Glencore cast aside its famed secrecy earlier this year with a record market debut that turned its executives into paper millionaires and propelled the firm into the headlines.

Founded in 1974 by Marc Rich, who fell foul of U.S. authorities but was later pardoned by President Bill Clinton, Glencore has assets spanning the globe and an oil division with more ships than Britain's Royal Navy. Top officials in many other large trading companies began their careers at Glencore.

The company handles 3 percent of the world's daily oil consumption. It's one of the largest physical suppliers of metals including zinc, lead and nickel, and a leading grain exporter from Europe, the former Soviet Union and Australia.

Though it began as a pure metals and oil trader, Glencore has bought a wealth of industrial assets since the late 1980s which now stretches from South American farmland to copper mines in Zambia.

Belgium-born Rich sold his stake in 1994.

The company's largest shareholder is now former coal trader and Chief Executive Ivan Glasenberg, an intense and charismatic South African who holds a stake of just under 16 percent, worth around 4.5 billion pounds at current prices.

Still not entirely comfortable with his public profile, Glasenberg has described his shift into the glare of publicity as "crossing the Rubicon". He is flanked in the top investor table by the youthful heads of Glencore's major divisions. Together, Glencore employees, including many of its top traders, own just under 80 percent of the company.

Glencore has long made its fortune by working on the fringes and in areas where few others dared. That strategy has often succeeded, though last month it found itself at the center of a dispute in the newly minted nation of South Sudan. A row over oil export control could jeopardize its role in selling the nation's crude.

Glencore's initial public offering was the largest globally this year, attracting huge publicity as well as arguments that it marked the top of the commodities cycle. The shares listed at 530 pence in May but have since traded below that, dropping almost a quarter in three months.

A large part of Glencore's market value comes from its listed stakes in other companies, most notably a 34.5 percent holding in Swiss miner Xstrata. Glencore has said publicly it would see "good value" in a merger with Xstrata, but that has so far been rejected by other, smaller, shareholders.

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BACK-HAUL MASTERS

WHO: Cargill, founded 1865 by William Wallace Cargill at the end of the U.S. Civil War

WHERE: Minneapolis, Minnesota WHAT: Grains, oilseeds, salt, fertilizers, metals, energy

TURNOVER: $108 billion (2010) CEO: Greg Page STAFF: 130,000

By Christine Stebbins

Tucked away in a private forest an hour's drive from the downtown high rises of mid-western Minnesota stands a brick mansion that strikes most visitors the same way: isolated, solid, regal, powerful.

Inside the "lake office," as it is known, sits the chairman of Cargill Inc., one of the largest privately held companies in the world.

Over the last 145 years, Cargill has grown from a single grain storage warehouse by an Iowa railroad to a behemoth of world commodities trade, straddling dozens of markets for food and other essential materials -- salt, fertilizer, metals.

With global sales of $108 billion in 2010, Cargill would have ranked No. 13 in the Fortune 500 list of publicly held companies, just behind Wall Street banking giant Citigroup.

But Cargill is anything but public. Despite a concerted campaign in recent years to put forth a friendlier face and personality through advertising and more appearances by its executives in public forums, Cargill is bound together by a culture of confidentiality, aggressiveness -- and winning.

"By and large they move as a team," says one retired wheat trader who did business with Cargill for decades. "They have some superstars but mostly a lot of team players -- what I would describe as well grounded, fundamental traders."

One of their secrets: filling the empty barges headed home.

"You've always had grain going down the river and going through the Gulf and being exported. One of the great things that Cargill did was develop the salt business to transport back up, eliminate the snow during the wintertime, and fill barges back up with back hauls," the wheat trader said.

"It was done a long time ago. People forget about it. But it was absolutely one of the greatest moves in the business."

Cargill hopes to dominate new markets as well. Two examples: it makes biodegradable and recyclable plastics out of corn at its $1 billion complex at Blair, Nebraska, and is creating new low-calorie food ingredients for such multinationals as Kraft, Nestle and Coca Cola.

TROUBLED PAST

At times Cargill's power has got it into trouble. In 1937 the Chicago Board of Trade forced the company to sell its corn contracts and Secretary of Agriculture Henry Wallace accused it of trying to "corner" the U.S. corn market. In 1972 Cargill came under attack as it secretly sold millions of tonnes of wheat to Russia, using a U.S. export subsidy program to boot -- and boosting food inflation.

It helps that the firm usually has the backing of Washington. In early 2007, when world grain prices were surging toward all-time highs, it faced a problem in Ukraine. Citing concerns over potential shortages and rising bread prices, Kiev had placed export quotas on cash crops and temporarily stopped granting export licenses for corn, wheat, barley and other grains.

Cargill, as well as fellow U.S. commodity trading firms Bunge and ADM, "agreed to undertake a public relations effort with the goal of creating a political problem for the Government of Ukraine", according to a 2007 diplomatic cable by the U.S. ambassador to Ukraine that was obtained by WikiLeaks and made available to Reuters by a third party.

To achieve this, "it would be necessary to recruit the (Ukrainian) farmers to take an active role. This would be a challenge, since small farmers were unorganized, and most had already cashed in their crops by selling to the traders early... Grain traders welcomed our offer to lend a diplomatic hand," the ambassador wrote.

Asked to comment, Cargill said the company actively backs free trade to boost agriculture in all countries and "is in dialogue with many important audiences, including governments... Additionally, we don't believe export bans are the solution to either high grain prices or price volatility." ADM declined to comment and a spokesman for Bunge could not be reached.

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THE 'KOCHTOPUS'

WHO: Koch Industries, founded 1920s by Fred Koch

WHERE: Wichita, Kansas

WHAT: Oil TURNOVER: $100 billion (2010)

CEO: Charles Koch STAFF: 70,000

By Joshua Schneyer

Founded in the 1920s by patriarch Fred Koch, a U.S. engineer who developed a new method of converting oil into gasoline, Koch helped to build a refining network in the Soviet Union in the 1930s. Fred Koch returned to the United States with a visceral hatred for Joseph Stalin and communism. A fiercely libertarian ideology and ultra-competitive engineering prowess live on at Koch Industries' spartan headquarters in Wichita, Kansas, a former Koch executive told Reuters.

With around $100 billion in sales, Koch Industries is a heavyweight among U.S. oil trading firms, and one of the most secretive U.S. corporations. Investors can forget about buying shares in the wildly profitable, family-run firm any time soon.

In oil markets, Koch is a brutally efficient middleman. A master of physical markets, it owns a 4,000-mile U.S. pipeline network and three of the country's most profitable refineries. Many small producers rely almost entirely on Koch to buy, sell and ship their crude. The company now operates in 60 countries.

The Koch brothers, Chairman and CEO Charles and co-owner David Koch, are high-profile supporters of libertarian and anti-regulation U.S. politics. Among their campaigns is one to end the U.S. Environmental Protection Agency's mandate for regulating greenhouse gas emissions. A profile in the New Yorker magazine last year identified the brothers as behind-the-scenes operators who bankroll the U.S. Tea Party movement. The Kochs have denied funding the Tea Party, but their empire's far-reaching tentacles in the political arena have spawned a nickname: the 'Kochtopus'.

The firm's traders, according to two industry sources, made a fortune for Koch in 2009-10 during a contango in U.S. oil markets -- a period when oil for future delivery was higher priced than immediate cargoes. Koch moved quietly to lead a boom in U.S. offshore crude storage, buying millions of barrels at cheap spot prices, parking them in supertankers near its Gulf Coast pipelines, and simultaneously selling into futures markets.

With Koch's easy access to tankers and pipelines, the strategy locked in profits of up to $10 a barrel with virtually no risk, traders said. When spot and futures prices began to converge, Koch would quietly slip crude from the ships into its onshore pipelines. Koch declined to discuss its trading with Reuters.

Former Koch employees were implicated in improper payments to secure contracts in six foreign countries between 2002 and 2008, and the company's officers admitted in a letter made public by a French court last year that "those activities constitute violations of criminal law", according to a report in Bloomberg Markets Magazine this month. The report also details sales by a foreign Koch subsidiary of petrochemical equipment to Iran, which is subject to U.S. sanctions, and a history of criminal or civil penalties for oil spills, a deadly 1996 U.S. pipeline blast, and under-reporting of emissions of benzene, a carcinogen, from a Texas refinery in 1995.

On its website Koch said it dismissed several employees of a French subsidiary upon learning of the improper and unauthorized payments. It also said its foreign units had ended sales to Iran "years ago", and did not violate U.S. law by conducting business with Iran earlier. Koch said its 90s-era pipeline blast was "the only event of its kind" in the company's history, and that a report to Texas regulators was voluntarily submitted by the company in 1995 to reflect higher emissions than it had originally reported. Koch eventually pleaded guilty in 2001 to a felony charge related to its reporting of the benzene emissions.

The firm's far-ranging industrial interests also include chemicals, forestry, ethanol, carbon trading and ranching. Its huge lobbying budget in Washington -- estimated at $10.3 million a year in a recent investigation by the Center for Public Integrity -- stands in contrast to Charles Koch's frugal demeanor within the firm.

The CEO sometimes flies to speaking engagements with no entourage. When in Wichita, he often dines in the Koch cafeteria. When out-of-town employees visit, he has taken them to dinner at seafood chain Red Lobster, a former Koch employee said. "But make no mistake, if you perform well at Koch, you are richly rewarded in salary terms," the person added. "And if you don't, you're out of there fast."

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CORN BELT KINGS

WHO: ADM, formerly Archer Daniels Midland, founded 1902 by John Daniels and George Archer

BASED: Decatur, Illinois

TADES: Grains, oilseeds, cocoa

TURNOVER: $81 billion (2010)

CEO: Patricia Woertz STAFF: 30,000

By Karl Plume

"Corn goes in one end and profit comes out the other."

That comment, by Matt Damon's character Marc Whitacre in the 2009 corporate scandal film "The Informant", described how U.S. agricultural firm Archer Daniels Midland Co. turned grain into gold. The line may be simplistic but it's not too far from the truth.

Decatur, Illinois-based ADM is one of the world's biggest commodities traders. It buys and sells multiple crops, mills and grinds and processes them into scores of products, both edible and not, and ships them to markets around the world.

A small Minnesota linseed crushing business more than a century ago, the firm is now is so big its financial performance is often viewed as a barometer of agribusiness as a whole. It owns processing plants, railcars, trucks, river barges and ships. It has trading offices in China, palm plantations and chemical plants across Asia, and silos in Brazil.

"We have a system that monitors the supply and demand needs, because often times they are working independently. For us in the middle, we have the ability then to manage the commodity risk that can be created by the timing differences between those buys and sells," said Steve Mills, ADM's senior executive vice president for performance and growth.

"You'll hear things through the marketplace or the wire services that it's raining someplace or not raining someplace and we'll have people on the ground saying 'I don't know what you're talking about' ... The futures market may take some of that information and run with it. One of the things that gives us an advantage is that we're working in the physical markets as well so (we can) absorb all that information and make the calls."

But ADM's reputation has endured a black eye or two over the years.

A lysine price-fixing scandal in 1993 tarred its name after three top executives were indicted and imprisoned. ADM was fined $100 million by the U.S. government for antitrust violations. The incident was the subject of "The Informant", filmed on site in Decatur.

ADM's environmental record has also been questioned by the Environmental Protection Agency, resulting in fines and forced installation of pollution control measures.

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PUTIN, JUDO, CONSPIRACIES

WHO: Gunvor, founded 1997 by Swedish oil trader Torbjorn Tornqvist and Russian/Finnish businessman Gennady Timchenko

WHERE: Geneva

WHAT: Oil, coal, LNG, emissions

TURNOVER: $80 billion 2011, company estimate ($65 billion 2010)

CHAIRMAN: Torbjorn Tornqvist

STAFF: Fewer than 500

By Dmitry Zhdannikov

When it comes to his critics, Vladimir Putin is a heavyweight puncher. Yet it took Russia's most influential politician almost a decade to publicly address one of the most serious allegations against him.

Critics, including the Russian opposition, put it simply -- Russia's paramount leader helped businessman Gennady Timchenko create the Gunvor oil trading empire, which saw a spectacular rise in the past decade when Putin was president and then prime minister.

Putin finally broke his silence last month: "I assure you, I know that a lot is being written about it, without any participation on my part.

"I have known the citizen Timchenko for a very long time, since my work in St Petersburg," Putin told a group of Russian writers. Putin worked in the mayor's office in the early 1990s when Timchenko and his friends, Putin said, spun off an oil trading unit of the Kirishi oil refinery.

"I never interfered with anything related to his business interests, I hope he will not stick his nose into my business either," Putin said.

Timchenko doesn't need to be told to keep a low profile. He is one of Russia's most private tycoons. And his silence helped feed rumors about Gunvor's remarkable growth.

In 2011 the company will turn over $80 billion, up from just $5 billion in 2004. In his first public interview to Reuters in 2007, Gunvor's Swedish co-founder Tornbjorn Tornqvist was keen to stress that the firm's success was built on its traders' experience and excellent contacts.

"But ... to involve Mr Putin and any of his staff in this dialogue is speculation," he added. That comment didn't help calm rumors and then Timchenko spoke too.

After a newspaper interview he wrote an open letter in 2008 headlined "Gunvor, Putin and me: the truth about a Russian oil trader".

"It is true that I, together with three other businessmen, sponsored a judo club where Mr Putin became honorary president," he wrote. "That is as far as it goes -- yet time and again, the media wrongly jump to the conclusion that the judo club connection means that Mr Putin and I are 'close', then leap into conspiracy-theory mode."

Tornqvist, a former BP trader and keen yachtsman, says he doesn't share the vision of Mark Rich, the father of contemporary trading, that political links are the most prized asset in trading.

"If you don't offer competitive terms, no one will work with you," he told a Russian daily this month. For Gunvor's rivals, too, favoritism is also an overly simple explanation of the company's success. They point to very competitive pricing offered by Gunvor when it comes to Russian oil tenders.

Gunvor's oil dominance has waned in the past two years -- it is handling around a fifth of Russian seaborne oil exports, down from a third three years ago. Perhaps to make up for that, it has moved into new sectors such as natural gas, coal and emissions.

Tornqvist says Gunvor's goal is to become a truly global company. "We know how to close the gap (with Vitol and Glencore) and we are actively catching up," Tornqvist said. Like Vitol, he says, Gunvor has no plans to follow Glencore into an IPO.

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THE RICH LINK

WHO: Trafigura, founded 1993 by former Marc Rich traders Claude Dauphin, Eric de Turkheim and Graham Sharp  

WHERE: Geneva, Switzerland

WHAT: Oil, metals

TURNOVER: $79 billion (2010)

CHAIRMAN: Claude Dauphin

STAFF: 6,000

By Dmitry Zhdannikov and Ikuko Kurahone

The godfather of oil trading, Marc Rich, taught one of his most talented apprentices Claude Dauphin almost every trick in the business. Like Rich, Dauphin created a leading commodities trading house by applying a knife-edge approach to business. He has made a fortune.

But there was one lesson that Rich must have cut short: how to avoid jail. While Rich himself fled to Europe in the 1980s to escape possible imprisonment for tax evasion in the United States, Dauphin spent almost six months behind bars in Ivory Coast in 2006-7 in pre-trial detention involving a dispute over toxic waste dumping.

Shortly after the material was dumped, thousands of residents of the city of Abidjan complained of illnesses, including breathing problems, skin irritation and related ailments. The government of Ivory Coast said 16 people died. The material was dumped in open-air sites around Abidjan in August 2006 after being unloaded from a Trafigura-chartered tanker.

Trafigura said it entrusted the waste to a state-registered Ivorian company, Tommy, which dumped the material illegally at sites around Abidjan.

"We went to the Ivory Coast on a mission to help the people of Abidjan, and to find ourselves arrested and in jail as a result has been a terrible ordeal for ourselves and our families," said Dauphin.

Trafigura paid a $200 million settlement and the country's prosecutor declared that there was no evidence of any illegality or misconduct by any Trafigura company or staff.

In London, Trafigura reached a pre-trial settlement to put an end to a class-action suit from some 31,000 residents. The judge said there was no evidence the waste had caused anything more than "flu-like symptoms" and said some media had been irresponsible in their reporting.

The scandal has hardly hampered the firm's stellar growth.

It has grown into the world's third-largest independent oil trader and second-largest industrial metals trader in less than 20 years, since it was set up in the early 1990s by Dauphin and fellow traders Eric de Turckheim and Graham Sharp.

Like rival Vitol, Trafigura has seized the opportunity to get into oil storage as oil majors focus on production. It announced in early October that it may float its storage subsidiary Puma Energy within 18 months.

Trafigura was also quick to recognize the potential of storage in the industrial metals markets. It bought UK-based metals warehouser and logistics firm NEMS in March 2010, a month after Goldman Sachs had acquired rival Metro and several months before Glencore and JP Morgan moved into the business.

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SEVEN-YEAR-OLD IN BIG LEAGUE

WHO: Mercuria, founded in 2004

WHERE: Geneva

ENERGY TURNOVER: $75 billion 2011 company estimate (2010, $47 billion)

CEO: Marco Dunand

By Christopher Johnson

Mercuria is just seven years old, but is already one of the world's top five energy traders.

Headquartered in Geneva, Switzerland, and named after Mercury, the god of merchants, Mercuria's business straddles global energy markets.

It has coal mines in Kalimantan in Indonesia, oilfields in Argentina and Canada plus oil trading in Singapore, Chicago, Houston and across Europe.

Its meteoric growth has been piloted by a couple of the sharpest minds in commodities.

Marco Dunand and Daniel Jaeggi, both Swiss, have worked together closely for more than 25 years in a string of commodities companies, buying and selling crude and oil products in many of the hottest oil trading outfits: Cargill, Goldman Sachs' J.Aron, Salomon Brothers' Phibro and Sempra.

In two decades of oil trading, Dunand and Jaeggi built fearsome reputations for seeing profit margins where others could only see potential losses. They were early dealers in a range of financial derivatives that are now commonplace and brought a level of sophistication to their trading books that most of their competitors could often only envy.

"You were always a little worried, taking the other side of their trades," said one European oil product trader, who declined to be identified.

NETWORK

Compared with other independent trading houses, Dunand and Jaeggi are high profile, speaking periodically to the press and giving regular interviews.

Their move to run their own empire came in 2004 when they founded Mercuria, raising capital from two Polish businessmen, Grzegorz Jankielewicz and Slawomir Smolokowski.

Jankielewicz and Smolokowski's company, J+S Group, traded Russian crude oil and was a leading supplier of oil to PKN Orlen, Poland's top oil refiner.

In 2006, J+S was raided by the Polish authorities in connection with an investigation into oil trading in Poland. J+S denied any wrong-doing and suggested the investigation was politically motivated. No suggestions of wrong-doing were leveled against Dunand or Jaeggi.

Dunand, chairman and chief executive, and Jaeggi, head of global trading, used Mercuria to expand their trading base from crude and oil products.

The business has grown to 890 employees in 28 countries with a turnover at $75 billion, trading almost 120 million tonnes of oil, coal and gas.

NO IPO, YET

Dunand says he and Jaeggi have no intention of selling the company they have built so swiftly, or launching an initial public share offering (IPO). But they have seen interest from potential investors, and have considered a tie-up with a sovereign wealth fund.

"We are not thinking about an IPO -- but that doesn't mean we don't have an open mind," Dunand told Reuters in June. "We are keen to consolidate our culture before we could think about changing it. Having said that, we have also been approached by potential investors -- sovereign funds and others -- who wish to make a private-equity type of investment in our company."

Dunand and Jaeggi are Mercuria's largest shareholders but an employee share ownership scheme holds around 40 percent of the company. "We don't see the need to raise money from the market," Dunand said.

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A BRIT IN HONG KONG

WHO: Noble Group, founded 1986 by UK scrap metal man Richard Elman

WHERE: Hong Kong

WHAT: Sugar, coal, oil

TURNOVER: $57 billion (2010)

EXECUTIVE CHAIRMAN: Richard Elman

STAFF: 11,000

By Luke R. Pachymuthu

Founded 25 years ago by Briton Richard Elman, the Hong Kong-based, Singapore-listed Noble Group buys and sells everything from Brazilian sugar to Australian coal.

Noble's shareholders include China's sovereign wealth fund, China Investment Corp., which bought an $850 million stake in 2009, and Korean Investment Corp., which has a minority stake.

Elman, the company's chairman, holds around 30 percent of the company. After dropping out of school he began his career at 15 in a metals scrap yard in the UK. He spent time trading metal in Hong Kong before moving to New York and a stint at commodities trading giant Phibro. Back in Hong Kong, he traded commodities with China in the 1970s and was the first to sell China's Daqing crude oil to the United States.

Noble has grown by acquiring troubled competitors. In 2001, for instance, it bought storied Swiss company Andre & Cie, once one of the world's top five grains traders. Finding itself with a big client base, but short of the physical supplies it needed to meet demand, Noble built its own processing facilities. It's a model it has replicated across various commodities.

Noble is now seeking to spin off its agriculture business with a listing on the Singapore Exchange. The grains business accounts for a third of its earnings and could have a value of more than $5 billion. Wall Street heavyweight JP Morgan is advising Noble on the planned listing.

The company's early forays into trading gas and oil left it with a black eye. Noble quit its global liquefied petroleum gas (LPG) operations in 2010, a year it was censured in Nigeria for discrepancies in gasoline shipping lists. Nigeria's Petroleum Product Pricing Regulatory Agency (PPPRA) said that in one transaction the amount of fuel submitted for subsidies did not match the actual quantity delivered. The company did not comment publicly on this incident.

And it sounded a rare retreat this week when sources close to the company said it had shut its European coal trading operations to focus on Asia and trading.

The China connection continues. In April Noble appointed Li Rongrong, former chairman of the state-owned assets supervision and administration commission of China, as a non-executive director.

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PRIVATE FIRM, PUBLIC SPAT

WHO: Louis Dreyfus, founded 1851 by Leopold Louis-Dreyfus

WHERE: Paris WHAT: Cotton, rice, grains, orange juice

TURNOVER: $46 billion (2010)

CEO: Serge Schoen STAFF: 34,000

By Gus Trompiz

In the two years since Margarita Louis-Dreyfus inherited control of the world's top cotton and rice trader following the death of her husband Robert, the woman the French press call "the tsarina" has been at the center of one of the most intriguing struggles in corporate Europe.

Analysts and commentators focused on differences between the forty-something, Russian-born Margarita Louis-Dreyfus and chief executive Jacques Veyrat over how to develop the 160-year-old family firm and whether to list its shares or seek a merger deal.

The winner? The tsarina, or MLD, as the press sometimes also calls her. In April, she and Veyrat told business daily Les Echos that the CEO would be stepping down to make way for Serge Schoen, head of Louis Dreyfus Commodities.

The very public power struggle was all the more remarkable because the company normally keeps everything, from its precise earnings to the exact age of its main shareholder and chairwoman, a secret.

Louis Dreyfus is a well-honed global operator, marketing agricultural commodities from wheat to orange juice. But most analysts think it needs fresh capital to grow, or to buy out minority family shareholders who will have the option to sell their stakes in 2012.

Unsuccessful talks have taken place with Singaporean commodities group Olam International Ltd, while bankers say they have been sounded out about a stock market listing.

Margarita Louis-Dreyfus told Les Echos that a listing, merger or the entry of a private investor were all options. But there's little room for maneuver: the majority stake she inherited is locked up in a trust her husband set up to last for 99 years.

"There is no ideal solution. What matters is that the group and its name survive," she said.

In the wake of Glencore's listing this year, there is interest in another big trading house going public; investors want exposure to long-term demand for commodities.

"I would love for them to be listed on the stock market," said Gertjan van der Geer, who manages an agriculture fund for Swiss bank Pictet. "Cargill and Louis Dreyfus are the large missing players in the commodity trading space."

It doesn't look likely anytime soon. "There is no rush, the company has been private for 150 years so there is no specific timing for changing the shareholding structure," one source close to the company said.

A management shake-up this year at France's most popular football club, Olympique Marseille, offers more proof of Margarita Louis-Dreyfus' determination to defend her husband's legacy and impose hard financial choices.

While pursuing Robert Louis-Dreyfus' passion for the club, which drained millions from his fortune, she has placed strict conditions on new investment.

"Olympique Marseille is at a crossroads," she told supporters in a statement to announce the changes at the club. It's a message that could apply just as well to the Louis Dreyfus group.

(Additional reporting by Jean-Francois Rosnoblet)

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CASHING IN ON CHINESE PIGS

WHO: Bunge, founded 1818 by Johann Peter Gottlieb Bunge in Amsterdam

WHERE: White Plains, New York.

TRADES: Grains, oilseeds, sugar

TURNOVER: $46 billion (2010)

CHAIRMAN and CEO: Alberto Weissner

STAFF: 32,000

By Hugh Bronstein

Two decades ago, Chinese farmers fed their pigs just about anything they could lay their hands on. But since White Plains, New York-based Bunge set up in China in 1998, many have switched to soy pellets. Result: China's pigs are heavier than ever and Bunge has become a key supplier to one of the fastest growing economies in the world.

The company, which went public 10 years ago, realized early that rising incomes in Asia could be fed by Brazil and Argentina, two of the last remaining countries with new farmland left for crop cultivation.

It helps that the company's CEO Alberto Weisser is a Brazilian, and that Bunge has more than 100 years experience in South America.

"Asian demand for South American soybeans has exploded over the last five years and Bunge is arguably the best positioned company in the world as it relates to servicing and profiting from the Asian demand trend," said Jeff Farmer, an analyst who follows the company for Jefferies & Company in Boston.

Founded in 1818 in Amsterdam, the company is the world's No.1 oilseed processor. Along the way it has moved headquarters to Belgium, Argentina, Brazil and then the United States.

"They go where the business is," said an industry insider who asked not to be named. "No sentimental attachments to any country or location. What matters is results, and you can see that in the way they trade."

It doesn't always work. In May, Argentina kicked Bunge off the country's exporters' register after the government alleged it had evaded $300 million in taxes, an accusation the company denies. Argentina's tax office is investigating dozens of other agricultural exporters as well.

Despite not being on the registry, Bunge continues to export grains and agricultural products as usual, but it cannot cash in on certain tax benefits and it faces hurdles transporting goods within Argentina, which analysts say could hurt the company's bottom line.

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ASIA'S NEW SUGAR KING

WHO: Wilmar International, founded 1991

WHERE: Singapore

WHAT: Palm oil, grains, sugar

TURNOVER: $30.4 billion (2010)

CHAIRMAN AND CEO: Kuok Khoon Hong

STAFF: 88,000 plus

By Harry Suhartono and Naveen Thakral

Around two decades ago, Kuok Khoon Hong decided to leave the business empire of his billionaire uncle Robert Kuok to set up an edible oil business with a big bet: China.

He competed fiercely with Indonesia's Salim group, the business group commanded by his uncle, and won, to dominate the edible oil market in the world's most populous nation.

Wilmar is now the biggest soy player in China with a 20 percent market share, measured in processing capacity. It is also the largest producer of consumer pack edible oils with about 45 percent market share.

Wilmar's strategy is to have its fingers in every part of the supply chain, from point of origin to destination.

In the palm oil business, for example, it owns plantations, mills, refiners, shippers, bottlers and the distribution network, in both the top producers, Indonesia and Malaysia, and the top consumers, India and China.

That gives its traders the advantage of timely market intelligence.

"We have a daily sales report from every corner where we operate and if we see sales slowing over a few weeks, we get to know the changing trend before others," one employee said, on condition of anonymity.

In 2006 Kuok, now 62, orchestrated a $4.3 billion merger which consolidated his uncle's palm oil assets into Wilmar, making it the world's largest listed palm oil firm.

Last year he surprised the market when he trumped China's Bright Food in a $1.5 billion deal to buy Australia's Sucrogen.

That complements his plan to set up a 200,000 hectares plantation in Indonesia's Papua island, which could make him the new "Asian sugar king", a title once hold by his uncle.

With nearly $10 billion worth of cash and bank deposits on Wilmar's balance sheet, Kuok is unlikely to stop his expansion drive there. Investors say he might already have his sights set on Brazil, to strengthen his position in the global sugar market.

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THE CUSHING CUSHION

WHO: Arcadia, founded 1988 by Japan's Mitsui & Co

BASED: London

TRADES: Oil

TURNOVER: $29 billion, Reuters estimate

OWNER: John Fredriksen

STAFF: 100

By Caroline Copley and Joshua Schneyer

Arcadia Petroleum, the London-based oil trading firm owned by billionaire oil tanker magnate John Fredriksen, was thrust into the spotlight in May when U.S. commodities regulators sued it for allegedly manipulating U.S. oil markets in 2008.

In one of its biggest-ever crackdowns, the U.S. Commodity Futures Trading Commission alleges Arcadia traders amassed large physical crude positions in Cushing, Oklahoma, to create the appearance of tight supply at the delivery hub for U.S. oil futures. Fredriksen's traders then hurriedly sold the physical crude at a loss, the CFTC lawsuit claims, ending expectations for tight supplies. Overall Arcadia profited by $50 million in derivatives markets as oil futures spreads collapsed, according to the suit.

In a May interview with Reuters, Fredriksen refuted the charges and shot back that "maybe they (U.S. regulators) are trying to get some revenge" for the 2010 BP oil spill in the Gulf of Mexico. Several of Fredriksen's traders worked for BP in the early 2000s, where aggressive oil trading at Cushing turned huge profits, and also led to BP paying fines for alleged trading violations.

"It is a normal situation for oil traders ... They are buying and selling oil. That's what it is all about," Fredriksen said of the recent CFTC charges.

Risk has often paid off handsomely for Fredriksen. With a personal fortune estimated by Forbes at $10.7 billion, the 67-year-old was Norway's richest man until he abandoned his citizenship in 2006 to become a national of Cyprus, where tax rates are lower.

Beyond Arcadia, Fredriksen's stable of commodities-related firms includes MarineHarvest, a global salmon-farming conglomerate billed as "the world's largest seafood company." He also owns oil tanker operator Frontline, U.S. oil trader Parnon -- also named in the CFTC lawsuit -- energy driller Seadrill and gas distributor Golar LNG.

Fredriksen became a leading oil shipping magnate well before buying Arcadia, in 2006. His 28-year-old twins Kathrine and Cecilie play a growing role in his sprawling business empire, according to press reports.

Arcadia doesn't make its revenues public. With 800,000 barrels a day to market, a volume similar to OPEC country Qatar, Arcadia's annual gross revenue from oil could be around $29 billion based on current prices.

The company lists its trade in paper derivatives as larger still, or about 10 million barrels a day.

Arcadia has faced controversy before. Founded in 1988 by Japanese trading giant Mitsui Inc., it was sued in 2000 by independent US refiner Tosco for allegedly conspiring to jack up prices of European benchmark Brent oil by cornering part of the North Sea physical crude market. The suit was settled out of court for an undisclosed sum.

Arcadia often trades large volumes of oil from Nigeria and Yemen, where it boasts close relationships with state oil firms. In a 2009 State Department cable from Yemen, obtained by WikiLeaks and provided by a third party to Reuters, sources told U.S. diplomats that the company used intimidation tactics including kidnapping threats to buy Yemeni crude at below market prices. Arcadia's chief executive in Singapore, Stephen Gibbons, denied the contents of the cable and told Reuters the kidnapping allegations were "ludicrous".

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60 YEARS OUT OF THE LIMELIGHT

WHO: Mabanaft WHERE: Rotterdam

WHAT: Oil

TURNOVER: $15 billion, Reuters estimate

CEO: Jan-Willem van der Velden

STAFF: 1,772

By Jessica Donati

Mabanaft's profile is low even by the secretive standards of other independent oil traders. The company has spent six decades trying to keep it that way. Its website reveals little more than that it is the trading arm of privately owned oil company Marquard & Bahls.

A rare news release announced that Jan-Willem van der Velden, who started as an international trader at the company in 1997, would take over as CEO from January this year.

Van der Velden took the reins of a company on a roll. Mabanaft sold 20 million tonnes of oil in 2010, up from 18 million tonnes in 2009. Pre-tax income for its parent company Marquard & Bahls was $274 million, up from $252 million the previous year.

That's still a lot less than the billions the biggest independent oil traders make and a long way off the revenue of Marquard & Bahls' oil tanking division, the second largest in the world after Vopak. Which may be why Mabanaft wants to expand beyond its northern European heartland.

From the 43rd floor of a Rotterdam skyscraper, staff members can look out over a network of rivers toward some of Europe's biggest refineries. But Mabanaft has also gradually opened offices in Singapore and the United States and, in the summer of 2010, a representative office in India.

As usual, details are scant. "Mabanaft is aiming to further diversify its product portfolio by pursuing a controlled geographic growth strategy," is all communications manager Maren Mertens is able to offer on the subject. Geography isn't the sole focus of expansion -- it has moved into naphtha, LPG and wood pellets.

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CASHEWS TO FORBES

WHO: Olam, founded 1989 by the Kewalram Chanrai Group, began trading cashews from Nigeria

WHERE: Singapore

WHAT: Coffee, cocoa, rice, grains, sugar

TURNOVER: $11 billion (2009/10)

CEO: Sunny Verghese

STAFF: 13,000 plus

By Harry Suhartono

A wealthier world needs more food. That's the argument of Sunny Verghese, chief executive of Singapore-based trading firm Olam International.

"We haven't seen this pace of population growth in our living memory," Verghese told a conference in Singapore late last year. "We have to increase food production by 50 percent by 2030, and 80 percent by 2050, with our hands tied behind our back," he said, referring to constraints to boosting output such as the lack of land, water and infrastructure.

Verghese still plans to cash in. In two decades the Bangalore-born trader has built Olam into a $4.5 billion company involved in around 20 different commodities including coffee, cocoa, rice, grains and sugar, from a startup that sold Nigerian cashew nuts.

These days, Olam has upstream operations in everything from a coffee plantation in Laos to a rice business in Thailand, from almonds in Australia to cashews in Africa. The firm is now the world's largest shipper of Robusta coffee and counts Nestle, Hershey, General Mills and Sara Lee as clients. It is also the world's second largest trader of rice after Louis Dreyfus.

The French trading giant approached Olam with a merger proposal in 2010, but talks failed earlier this year.

Verghese, who Forbes says is worth $190 million, believes he can go it alone and aims to quadruple the company's value by 2015. It helps that Olam has backing in high places: Singapore state investor Temasek holds a 14 percent stake in the trading firm.

Some analysts point to risk factors: Olam's exposure to natural disasters, such as recent flooding in Australia, and social or political unrest such as that in Ivory Coast.

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IN SEARCH OF A REFINERY

WHO: Hin Leong, founded 1963 supplying diesel to fishing boats

WHERE: Singapore

WHAT: Oil and tankers

TURNOVER: $8 billion (2010)

CHAIRMAN AND CEO: Lim Oon Kuin

STAFF: About 100

By Yaw Yan Chong

Lim Oon Kuin arrived in Singapore from China over 50 years ago, and started to deliver diesel by bicycle to boatmen. Now in his mid-60s, the reclusive trader is busy with his latest empire-building effort: getting government approval to build the city-state's fourth oil refinery.

Known as OK Lim, the founder of Singapore's Hin Leong Group wants to build the company from oil trader into an integrated company. He's well on the way. A fleet of tankers and Asia's largest commercial storage facility are among the company's assets.

The $5-billion refinery would pit Hin Leong against refineries already operated in Singapore by oil majors Shell, ExxonMobil and a joint venture between Chevron and China's PetroChina.

Hin Leong made its name in the hard-fought Asia fuel oil and distillates market over 20 years ago, and is arguably the largest independent distillates trader in Asia, regularly mounting successful trading plays in the Singapore market. It also has a substantial presence in Asia's fuel oil market, the world's largest.

Lim's Chinese connections have played a big part in the company's success. It focused initially on shipping fuel oil cargoes to the mainland, a relationship that has since deepened. Hin Leong is joining hands with several Chinese firms to build the proposed Singapore refinery, even as it seeks to build a larger oil storage facility in the South Chinese province of Fujian.

Lim's biggest bet may have been an unprecedented 1997 spree in which Hin Leong bought 30 million barrels of jet fuel and diesel in the key Singapore market -- worth nearly US$800 million over a three-month span. The jury is still out among rival traders on whether he made or lost a fortune that summer, a debate Lim is unlikely to settle publicly.

In his only media interview, with Reuters in 2006, Lim credited his success to investment in his tanker armada -- the "secret weapon" that helped him set up stealthy and profitable deals in the 1990s -- and his philosophy of perseverance.

"Sometimes you get it wrong, but you have to accept it," he said.

(Jessica Donati, Christopher Johnson, Ikuko Kurahone, Richard Mably, Dmitry Zhdannikov reported from London, Gus Trompiz from Paris, Caroline Copley from Zurich, Emma Farge from Benghazi, Karl Plume and Christine Stebbins from Chicago, Hugh Bronstein from Buenos Aires, Joshua Schneyer from New York, Luke Pachymuthu, Harry Suhartono and Naveen Thukral from Singapore; Editing by Richard Mably, Simon Robinson and Sara Ledwith)

(This story October 21 story was corrrected in the 17th paragraph to reflect that Trafigura paid a U.S. Customs fine on an Iraqi crude cargo in 2001, but denied wrongdoing; clarifies language on Trafigura's 2009 legal action to prevent a report on toxic waste dumping in Ivory Coast from being published)

http://www.reuters.com/article/2011/10/ ... S320111028

[CrackSmokeRepublican]

Oleg Deripaska works with Nate Rothschild. --CSR

Glencore-Xstrata union would shake up a mining industry in hibernation

Eric Reguly

Rome — The Globe and Mail

Last updated Thursday, Sep. 06 2012, 4:01 PM EDT

Mick Davies, CEO of Xstrata. (Justin Sutcliffe/Justin Sutcliffe/THE GLOBE AND M)

The eyes are blinking, the limbs are twitching. Mining companies are emerging from their two-year coma. Money is being raised and boardrooms are once again buzzing with deal talk. One deal in particular - the initial public offering of Glencore International - has the potential to make the entire industry sit bolt upright. The IPO is almost certain to happen next year and would trigger a flurry of other stock market listings, mergers and takeovers.

Owned by some 485 partners, none of whom speak to the media or flaunt their wealth, Glencore is the dark force in the commodities world. Run out of Zug, Switzerland, it is the world's biggest commodities trader and a mining company in its own right, with a broad range of public and private investments in coal, copper, nickel, zinc, aluminum, gold and oil. Its biggest single investment is 34 per cent of Xstrata, the Anglo-Swiss mining company that, in 2006, won the ferocious battle for Falconbridge (the loser, Inco, went to Brazil's Vale SA). Glencore also owns 9 per cent of Rusal, the Russian aluminum giant controlled by Oleg Deripaska.

Glencore's Goldman Sachs-style conversion from private partnership to listed company, by way of IPO or merger with Xstrata, has been an on-again, off-again rumour for at least a year. The rumours picked up momentum last December, when Glencore, led by Ivan Glasenberg, a South African-born accountant who emerged from Marc Rich's notoriously aggressive trading shop, sold a $2.3-billion (U.S.) bond that is convertible into Glencore equity. The bond valued the company at $35-billion, an amount that some analysts think underestimates its true worth by $10-billion to $15-billion.

Then the rumours died off, partly because Europe's sovereign debt crisis threatened to plunge the Western world back into recession and partly because Xstrata CEO Mick Davis discretely made it known that he was not necessarily a supporter of Mr. Glasenberg's preferred scenario - a Glencore-Xsrata marriage through a premium-free merger. Sources say Mr. Davis lost some love for Mr. Glasenberg in 2008, when Glencore derailed Vale's top-of-the-market offer for Xstrata.

The deal talk came roaring back this summer. It started when Nathaniel Rothschild, the former Atticus Capital co-president who is the son of British financier Jacob Rothschild, used Vallar, his investment company, to raise $1-billion for mining asset purchases. The Vallar IPO was more popular than expected, signalling renewed interest in the mining business. Mr. Rothschild also used the occasion to pump Glencore. "I think Xstrata and Glencore are two world-class businesses, and, if put together, they would be worth a lot more," he told Reuters.

He said he doesn't care how the companies come together as long as they do (he owns $40-million of Glencore convertible bonds). People close to Xstrata say Xstrata is a believer in merging the companies but would prefer a two-stage process: a Glencore IPO to give a proper market value to Glencore shares, followed by an offer for the Xstrata shares it does not already own.

Since then, analysts have been busy writing reports about the potential union of Glencore and Xstrata, what the enlarged company might look like and its strategic advantages, from the vast economies of scale across the supply chain to margin improvement through to Glencore's ability to market all of Xstrata's commodities. In a fresh report, London's Liberum Capital said the new company would have a market value of $75-billion. That would make it an instant super major, one capable of competing with the industry heavyweights - BHP Billiton, Rio Tinto, Vale and Anglo American.

Citigroup and Morgan Stanley are already advising Glencore on its big move. Sources say Glencore could hit the IPO or merger button as early as the first half of 2011 (the latter scenario would depend on winning over Mr. Davis and figuring out who would run the merged company). The mining and commodities industries expect the Glencore-Xstrata deal, whatever shape it takes, to trigger a deal-making frenzy.

As a stock market company, Glencore would have a takeover currency and access to public capital, giving it more potential firepower than its rivals and the ability to move faster when it spots a takeover or investment opportunity. Among its biggest competitors, only Noble Group, listed in Singapore, is publicly traded. The others - Trafigura Beheer, Gunvor International and Vitol - may have to follow Glencore and Noble onto the stock market. An industry that once guarded its privacy and operated largely in secrecy would be almost entirely open and transparent. Since these companies are not purely traders, they would be competing with the hard-asset mining companies for resource investments and takeover opportunities.

Then there is Anglo American. Xstrata's Mr. Davis has long coveted Anglo. Last year, Xstrata proposed a "merger of equals" to Anglo. Cynthia Carroll, Mr. Davis's Anglo counterpart, politely told Mr. Davis to get lost, which he did. The next attempt, launched by a company even larger than Anglo, and run by Mr. Davis and Mr. Glasenberg, two of the savviest bosses in the industry, may be harder to resist. And if the new Glencore were to put Anglo into play, rival bids would be all but certain.

Don't forget the Russian angle. Glencore's 9 per cent of Rusal, a company it helped create, gives it a window on Russia, one of the mining world's last frontiers, and a close relationship with Mr. Deripaska, another take-no-prisoners empire builder. Together, Glencore and Xstrata, with Rusal at their side, could have a lot of fun shaking up an industry that has been paralyzed since the credit crunch hit.  

http://m.theglobeandmail.com/report-on- ... ice=mobile

[CrackSmokeRepublican]

Interesting note on the Mabanaft company's CEO out of the Netherlands.  "van der Velden" is a classic Dutch crypto-Jew/Protestant name like "Roosevelt".

WHO: Mabanaft WHERE: Rotterdam

WHAT: Oil

TURNOVER: $15 billion, Reuters estimate

CEO: Jan-Willem van der Velden

-----

Let us enter into detail in the "Dutch"Eberstadt's.

What we know about the origins is that all goes back to about 1750 when, according to the public administration, a Friedrich Eberstadt  (appr 1750-1809), merchant, must have  been born probably in Eberstadt near Buchen. His wife became Elisabeth Susmann. According to the jewish records, mentioned in the protestant churchbooks of Hilsbach, his hebraic name was Isaac Levi or Moses Löb¹, rabbi, and the name of his wife Babette Susmann, daughter of Levi Susmann, living in Hilsbach. Friedrich must have died in Bödigheim near Buchen about 1810, Elisabeth in 1834.

The family name Eberstadt turns up in the public administration for the first time in 1809 when the widow Bessle Isak Eberstadt in Hilsbach  is mentioned with 2 sons and 3 daughters. In another list of 1813 from Hilsbach it is clear that the widow Isaac Levi took the family name Eberstadt. Did she adopt the name Eberstadt because her husband came from Eberstadt? He was mentioned a Schutzbürger (protected civilian) of Eberstadt.²

The jewish records in the Hilsbach churchbooks tell us more. On 8 February 1834 died Babette(=Elisabeth) Eberstättin, widow of Moses Löb Eberstadt, rabbi. She was appr. 84 years old. (born about 1750).

------------------------------------------
¹  Jewish men could have various jewish names; Isaac Levi = Moses Löb
² Which meant of Freiherr Rüdt von Collenberg-Eberstadt, Schloss Eberstadt.

On the 20th March 1828 a child, Gumbel Featge was born, son of the unmarried daughter of the defunct Isaak Levi von Eberstadt and his in Hilsbach living widow Besseder Babet (=Elisabeth).

On the same day died Liebet Eberstätterin (born in 1800),   daughter of the defunct Eberstadt-Schutzburger Isaac Levi  and his in Hilsbach living widow  Besseder Babet. Liebet, apparently the mother of Gumbel was 28 years old and was buried in the jewish cemetery Waibstadt.

On the 22nd january 1862 died the unmarried Fanny Eberstätter, born in 1782 in Hilsbach. She was 80 years old and was buried in the jewish cemetery Bödigheim.

Summarized: Friedrich Eberstadt, Isaak Levi, Schutzbürger of Eberstadt bei Buchen and Elisabeth Susmann, both born about 1750 and living in Hilsbach (Baden) had 5 children, viz. Victor = Jacob Daniel Eberstadt (see later), Fanny Eberstadt, Liebet Eberstadt, Moses Isaak (no records),  Franziska.

The marriage and death records of Jacob Daniel Eberstadt (1790-1832), merchant, show that he was the son of Friedrich Eberstadt and Elisabeth Susmann from Hilsbach.There is no birth certificate or birth record of Jacob Daniel, but from other sources it is clear that he was born in 1790 under the name of Victor Eberstadt, Hilsbach (Baden), of jewish parents. In 1821 Victor Eberstadt was baptized christianly in Bornheim near Frankfurt and adopted his new christian names Jacob Daniel. On the 6th of April 1825 Jacob Daniel E. married in Ründeroth (Bergische Land) Wilhelmina Niebel, born in 1801 near Ründeroth. Jacob Daniel E. died near Ründeroth in 1832, 42 years old and Wilhelmina Niebel in Winterswijk (the Netherlands) in 1859. No particulars are known about them.

Johann Carl August Eberstadt (1829-1908),  merchant and later evangelist was the only child  of Jacob Daniel E. and Wilhelmina Niebel. He was born near Ründeroth on 17 February 1829 and he died in Winterswijk 29 January 1908. He married in Halver near Elberfeld/Wuppertal in the Protestant church on 13 May 1851 at the age of  22 with Helene Viebahn, who was then 27.  In the dutch publication "Een is uw Meester" by Dr W.J. Ouweneel, one chapter is dedicated to Carl August Eberstadt, an evangelist-pioneer of the Brother-movement (Brüderverein / Darbists / Baptist)³. As he was only 3 years old when his father died,  Carl August was raised - according to family history - at coreligionists who gave him a severe education.  Around 1850 he must have come into contact with the "Evangelische Brüderverein" founded in that year and which had its base in Elberfeld ( about 30 km of Halver ).  With other brother-evangelists Carl August was arrested in 1853 in Dillenburg (Nassau) for preaching there and extradicted to Hessen.

...

The couple Eberstadt-Viebahn had totally 6 children: 3 sons and 3 daughters. Two sons and one daughter ( 1, 2 and 3 ) remained unmarried and later ran the drapery-business.

Daughter Helena Eberstadt (3) married Karel Christiaan ten Pas in 1889. Their son August changed his name by permission of Queen Juliana around 1965 in Eberstadt ten Pas, of which a descendant is still living in Hengelo.

Son Herman Eberstadt ( 1860 - 1945 ) , nr 4, merchant, married Margarethe Rutgers and had 3 daughters. They lived in Arnhem/Oosterbeek. His daughter Hendrika Johanna Eberstadt married August Carel van der Velden 4) , the son of Jan Dirk van der Velden and Anna Berendina Eberstadt (see later). The son of August Carel van der Velden and Hendrika J. Eberstadt changed his name around 1960 in Eberstadt van der Velden of which there are several descendants.

Another daughter of Herman Eberstadt was Helena Eberstadt (unmarried), who died in 1966 as the last "Dutch"Eberstadt.

Daughter Anna Berendina Eberstadt (nr 5) of Carl August Eberstadt, who lived from 1863-1939, schoolteacher, married the Presbyterian Minister Jan Dirk van der Velden (1859-1947) and had 8 children, of which August Carel (1890-1955) (see above) and Willem Adriaan van der Velden (1900-1981), banker in Rotterdam, whose son Matthijs van der Velden is the author of this note.

 

Sources:   1.  Israelitische Standes-Eintragungen in den Kirchenbüchern der ev. protest. Gemeinde Hilsbach
                  2.   Heiratsurkunde Jacob Daniel Eberstadt 1825 mit Namen Vater und Mutter.
                  3.   Namenannehmungsregister 1809 und 1813, Hilsbach.
                  4.  Meinholz Lurz, "Hilsbach. Von der kurpfälszischen Amtsstadt zur Stadtteil von Sinsheim," die jüdische Kultusgemeinde, (pages 128-179) (1997).  .
                  5. Juliana von Stockhausen                
                  6.  Wikipedia, "Rudolf Rüdt von Collenberg-Eberstadt" (1836-1900). (2011).
                  7.  Dr W.J. Ouweneel, "Een is uw meester", Carl August Eberstadt
                        (pages 132-151) (1985).
                  8.   "1000 Jahre Bödigheim", Dr Elmar Weisz, die Juden in Bödigheim
                        (pages 218-266) (2010).  
                  9.   Adolf Freiherr von Collenberg, "die Familie Rüdt von Collenberg in
                        Bödigheim Sesshaft seit 1286" (1986/2011)

5)  "Auf Immerwiedersehen: das Schlosz im Odenwald" (pages 94-136) (1977)

http://www.hagenbeekgenealogie.nl/Eberstadt%203.htm

[CrackSmokeRepublican]

More endless Jew Scams continuing in commodities.... you are paying at least 45.77% more than needed for energy... which is lifted by Jew Scammers and now it is official.  Dodd's father presided over the court at Nuremberg for the Jews... and now junior Dodd presides over the Jew Scams of your children...  
--CSR
---------

Breaking* Judge Throws Out CFTC's Position Limits Rule
September 28, 2012 By The Doc 41 Comments

*Updated with Gensler's response

For anyone who wondered, the banksters are above the law- just ask Mr. Dimon and his Presidential cufflinks.

DC District Court Judge Robert Wilkins Friday threw out the CFTC's position limits rule, scheduled to go into effect Oct 12th.
Naturally this was announced late on a Friday afternoon after the markets had closed, to insure as little to no publicity as possible.

(Reuters) – A U.S. judge handed an 11th-hour victory to Wall Street's biggest commodity traders on Friday, knocking back tough new regulations that would have cracked down on speculation in energy, grain and metal markets.

Judge Robert Wilkins of the U.S. District Court for the District of Columbia threw out the U.S. Commodity Futures Trading Commission's new position limits rule, and sent the regulation back to the agency for further consideration.

Wilkins ruled that, by law, the CFTC was required to prove that the position limits in commodity markets are necessary to diminish or prevent excessive speculation.  

He also ruled that the amendments to the 2010 Dodd-Frank financial oversight law "do not constitute a clear and unambiguous mandate to set position limits, as the Commission argues."

The ruling is a major victory to traders just two weeks before parts of the new position limits rule were scheduled to go into effect.

Read more:

 For those holding out the faintest of hopes in the system, we have reached out to the CFTC's Bart Chilton for his comments, as well as whether the CFTC will appeal Judge Wilkins' decision.

*Update:
Vampire Squid CFTC Chairman Gary Gensler has released a public statement on the ruling:
Statement of Chairman Gary Gensler on Position Limits
September 28, 2012

"As part of the Dodd-Frank Act, Congress directed the Commission to impose limits on speculative positions in physical commodity futures and options contracts and economically equivalent swaps. The Rule addresses Congress' concern that that no single trader is permitted to obtain too large a share of the market, and that derivatives markets remain fair and competitive. I believe it is critically important that these position limits be established as Congress required. I am disappointed by today's ruling, and we are considering ways to proceed."  

http://www.cftc.gov/PressRoom/SpeechesT ... ment092812

[CrackSmokeRepublican]

LIBOR-gate Comes To Crude: Total Exposes Price Fixing In The Energy Market

Submitted by Tyler Durden on 10/09/2012 11:38 -0400  

While the recent revelations of multi-year LIBOR manipulation (but, but how was that possible: it involved thousands of people, operating for years, manipulating numbers - all the traditional reasons presented against conspiracy theory crackpots alleging that manipulation may be going on here, or there, or at the BLS, or somewhere), which we had said had been happening for the past 3 years, confirmed that the entire rate-based derivative market was a giant scam, at least one market spared from cartel whistleblower, i.e., insider, humiliation, was the commodities market. No longer. As the FT first reported, a Swiss trading office of Total Oil Trading sent a response letter to IOSCO (the International Organization of Securities Commissions), alleging that the same kinds of market "pricing" shennanigans that have been now exposed to have taken place over bottles of Bollinger, may have been pervasive in the crude market as well.

From the letter which may have set off the same avalanche in the energy markets as the Barclays "settlement" did for rates:

TOTAL is a subscriber to the major PRA services for the energy markets (oil, gas, coal, power, CO2, and biofuels). The work done by the PRAs can generally be considered conscientious and professional. However, the published prices do not always represent those of the market with the same degree of accuracy. This heterogeneity exists both within individual PRAs and between PRAs. As well, the quality of the reporting is not always consistent over time. Finally, while certain PRAs have pricing processes that are reproducible using the underlying data, others do not (the principal difference being the use of "judgement" that may bias prices away rather than toward the market).

Barclays (only one bank for now, soon many others) already showed us in all too criminal (yet neither admitting nor denying guilt) terms what "judgment" means in the context of conflict of "interest rate" price setting. It means precisely the same in the energy market.

And while it was the BBA in the role of ringleader for the Libor scandal, it appears when it comes to commodity price fixing, the entity behind the scenes is Platts:

Very approximately, for all transactions linked to PRA prices, Platts represent 90% to 95% of transactions on crude 85% to 90% of transactions on products, and 85% to 90% of OTC derivative transactions. The remaining share is covered by Argus and other PRAs which are present in niche markets.

    Traders, buyers, and marketers depend upon the PRA prices as a source of market references for on-going transactions. Oil market players contribute to the price assessment process by reporting their deals (ensuring the assessed prices take them into account). This interdependence between the PRAs and the oil market players defines the price discovery process.

    Platts (the dominant price reporting agency) imposes a methodology that does not furnish a market price (based on the day's prices) but rather a price to the market.

    Sometimes the criteria imposed by PRAs do not assure an accurate representation of the market and consequently deform the real price levels paid at every level of the price chain, including by the consumer. The difference in methodologies between Platts and Argus is the greater integration of the shape of the forward price curve by Platts than by Argus (or ICIS or APPI, etc). Accordingly, when the market is in strong backwardation, Platts spot prices are lower than the rest and in contango they are higher.

     

Inaccurate pricing is not simply an issue regarding the pricing of OTC contracts. Margins for refiners and retailers as well as prices for end-users are directly impacted by erroneous prices.

The conclusion:

Where these margins are particularly narrow (such as in Europe) the volatility and uncertainty in PRA pricing methodologies can be very detrimental to the financial health of the companies concerned.

We doubt we need to get into the nuances of what happens when a cartel marks prices to a central distribution warehouse instead of market (we have done that already for the CDS market and for LIBOR), and what happens when surreality can no longer be sustained and all these market trading vehciles have to reprice to fair market values. Can one spell margin call driven liquidations?

And there you have it: while the commodity cartel had managed to keep quiet in the golden years, when everyone was making money, now that it is time to cull the competition, one by one the cartel members are stepping up and breaching the fundamental rule of the prisoner's dillemma: don't defect.

And just like in the Libor scandal one defection was enough to destroy the entire Libor-based market, so Total likely set the precedent for everyone else to follow suit and expose their competitors for unfair and potentially illlegal practices. Because if they don't do it first, the risk is someone else will do it to them. Finally, remember that in the new normal, a banker is a lawyer's biggest... enemy.

This is the FT's assessment as well, which unsurprisingly exposes the same key cities as have dominated the LIBOR scandal:

The unusually candid public comments by the trading arm of Total have broken the omertà of the energy physical trading industry, a close-knit community in London, Geneva, Singapore and Houston where disputes are usually settled in private.

And for those curious just who the commodity "cartel" consists of, here are some names that would prefer Total never existed (all of which provided response letters to IOSCO praising the pricing mechanism... of course):

    ISDA
    CME
    ICE
    Saudi Aramco
    BP
    ARGUS
    API
    GFMA
    IBGE
    CEAG
    IATA
    ICIS
    LEBA
    Platts

Or, in other words, the entire energy market status quo.

http://www.iosco.org/library/pubdocs/pdf/IOSCOPD391.pdf

http://www.zerohedge.com/news/2012-10-0 ... rgy-market

[CrackSmokeRepublican]

Michael Steinhardt, like Edgar and Charles Bronfman, is the son of a Meyer Lansky lieutenant, "Red" Steinhardt, who was the National Crime Syndicate's number-one jewel fence. "Red" Steinhardt was also a partner with Lansky in the Havana casinos prior to Castro's takeover, and was also affiliated with the Genovese organized-crime family. According to Michael Steinhardt's autobiography, it was his father's ill-gotten gains that put him through the University of Pennsylvania Wharton School of Business; and it was syndicate loot that started him on a successful career as a Wall Street speculator and hedge-fund manager.

For the past 15 years, Steinhardt has been one of Presidential wanna-be Sen. Joseph Lieberman's (D-Conn.) biggest boosters, having founded the neo-conservative Democratic Leadership Council (DLC), and promoted Lieberman as the group's poster boy.

Steinhardt grabbed headlines in January 2001, when he played a pivotal role in conning President Bill Clinton into granting a Presidential pardon to Russian Mafiya "Godfather" Marc Rich, one of Steinhardt's longtime business partners. Rich was a fugitive from U.S. Justice Department indictments for tax evasion and trading with the enemy (Iran). As EIR reported on Jan. 10, Rich is another source of dirty money flows into the Sharon camp, through his secret Russian Mafiya partner, Grigori Loutchansky, among others.

Mafiya Damage Control

In a Jan. 15 interview with a Washington, D.C.-based journalist, Steinhardt boasted about his recent intervention to sabotage the electoral campaign of Israeli Labor Party Chairman Amram Mitzna, which was also intended to control the damage being done by the spreading scandal over the Likud party's ties to organized crime, into which Steinhardt and the whole Mega Group could be swept.

On Jan. 12, Steinhardt said, he had had a private dinner with Ariel Sharon. While claiming that he does not support either major party in Israel, Steinhardt did insist, that the Jan. 28 elections must produce another "national unity government," along the lines of the coalition that Sharon formed in 2001, in which Labor Party leaders Shimon Peres and Binyamin Ben-Eliezer held the Foreign and Defense portfolios. Their participation with serial war-criminal Sharon, gave him and and his right-wing thug allies, 20 months in which they could tear apart the entire Oslo peace process, brutally exterminate much of the Palestinian Authority, and achieve Sharon's ultimate goal: the "ethnic cleansing" to remove all Palestinians from the West Bank and Gaza.

Mitzna has repeatedly stated that he will not join a national unity government with the mobbed-up murderers of Likud, and will press for Israeli authorities to get to the bottom of the Sharon-Likud-Mafiya election theft scandals. Whatever the outcome on Jan. 28, it is widely acknowledged inside Israel, that the scandals have denied Sharon the landslide victory he was hoping for. Mitzna, in rejecting the national unity scheme, is paving the way for a near-term political victory, uncontaminated by compromise with Sharon. The organized-crime/Likud scandal has become too big to bury, and any Sharon government—minus Labor—would likely be short-lived and paralyzed by scandals.

This is something that the Mega Group—in particular Steinhardt and Rich—cannot tolerate.

Steinhardt and Rich

Steinhardt also admitted to the Washington journalist, that while in Israel, he met with Marc Rich, where they joined in promoting the Mega Group's favorite "charity," Birthright Israel, to which, he acknowledged, Rich is a major donor. Birthright Israel, founded by Steinhardt, and co-chaired by Charles Bronfman, is a U.S.-based charity, with "501(c)3" tax-exempt status, which sends Jewish youths, between 16 and 26, to Israel for indoctrination, to convince them to "make aliya"—i.e., to take up permanent residence.

But a closer look by EIR investigators at Birthright Israel raises some important questions about what the "charity" is actually all about. Among the most disturbing pieces of the picture is its close links to an Israeli-based "charity," the Mikhail Chernoy Foundation, a tax-exempt front, set up by one of the most notorious of the Russian Mafiya figures residing in Israel. The website of the Chernoy Foundation boasts that it is involved in joint projects with Birthright Israel.

Mikhail Chernoy is a major figure in the Russian Mafiya, whose "business" activities have been associated with Benya Stilitz's attempted takeover of Alpha Bank in Russia, and earlier Mafiya moves to corner the Russian aluminum sector, in league with none other than Marc Rich.

Stilitz is particularly close with Russian Mafiya don Grigori Lerner (a.k.a. Zvi Ben-Ari), who is scrutinized in Jeffrey Robinson's The Merger: The Conglomeration of International Organized Crime (New York: The Overlook Press, 2000). According to Robinson, after Lerner spent 18 months in jail in Russia for fraud, following a most unusual extradition from Switzerland, Lerner, in 1995, was permitted by the Israelis to found the Israeli-Russian Finance Co., accused of having been involved in laundering foreign funds.

Robinson reports that Lerner set up a string of shell companies around the globe, including in Panama, the Caribbean, Mauritius, Luxembourg, and Cyprus. Lerner became a major money launderer with the permission of the Israeli government, where there are no laws against money laundering. Lerner is also known to have given the former Israeli Minister of Trade and Industry Natan Sharansky, $100,000; through Sharansky, Lerner made approaches with his largesse to the Likud and other parties.

Mikhail Chernoy's Foundation was created in June 1, 2001, and is seen by Israeli investigators as a public relations ruse. Chernoy claims that it was created after the terrorist bombing of the Dolphinarium Disco in Tel Aviv, to aid the 150 survivors and families of the 20 dead, mostly Russian immigrants. The foundation website boasts that American youths whom Birthright Israel brings to Israel, have met with these bombing victims. One item on the Chernoy Foundation website reported: "The emotional meeting [between the Birthright Israel youths and the Dolphinarium survivors] was moderated by representatives of the Mikhail Chernoy Foundation, which has been assisting Dolphinarium victims from the very first night of the attack. The Foundation financed a book and is producing a movie."

Mikhail Chernoy's brother Lev has been a prime target of the Swiss investigation into the Russian Mafiya since he attempted to take over the Russian aluminum industry—allegedly with the assistance of Marc Rich. Also, according to Robinson, Swiss investigators believe that Lev Chernoy has ties with the Mega-linked "Russian oligarch" Boris Berezovsky, who is accused of siphoning $200 million in hard currency out of Aeroflot accounts and into Switzerland. Both Chernoy and Berezovsky are suspected of involvement with the Bank of New York, which laundered billions of dollars in hard currency and state assets out of the Soviet Union during the early 1990s. According to Robinson, the person behind many of these murky deals was Likud campaign contributor Grigori Loutchansky. A recent international law enforcement probe of the Bank of New York operations has turned up evidence that Marc Rich was a silent partner of Loutchansky's in the Nordex operations, which started out as a KGB money-laundering front in the late 1980s.  

According to the book by the late Robert I. Friedman, Red Mafiya: How the Russian Mob Has Invaded America (Boston: Little, Brown & Co., 2000), Natan Sharansky, the former Soviet refusenik, head of the Russian emigré party Yisrael B'Aliyah, and a Sharon Cabinet minister, took millions of dollars from Loutchansky. Sharansky then introduced Loutchansky to former Likud Prime Minister Benjamin Netanyahu, who is now Sharon's Foreign Minister. The Israeli press reported at the time, that Netanyahu took $1.5-5 million from Loutchansky, and the contributions to the Likud are never known to have stopped.

In 1994, new Israeli election laws were passed, making it a crime to accept foreign campaign contributions.

Show Me the Money  

With Steinhardt and Rich running around Israel, promoting a pre-election revolt against Labor Party Chairman and lead candidate Mitzna, over his refusal to entertain the idea of a unity government with Sharon—the only thing that would save the Likud thug from a near-term political fall—another question must be asked: Is Birthright Israel, like so many other U.S.-based tax-exempt charities, serving as an illegal siphon into Sharon's and Likud's coffers on the eve of the election?

This is a matter that urgently needs to be taken up by Israeli and American prosecutors. While there is no "smoking gun" document, proving that Birthright Israel is funneling cash into the right wing, a careful review of the fund's U.S. 990 Internal Revenue Service filings poses some disturbing questions. According to the most recent filing available, covering the year 2000, in that year alone, Birthright Israel, with U.S. status as a 501(c)3 tax-exempt charity, took in nearly $50 million in contributions, from an undisclosed number of donors. In the same year, its total expenses—including sending U.S. students to Israel—cost under $5 million, leaving an unaccounted-for balance of $45 million!

The 990 forms also revealed that Birthright Israel, more than any other "charitable" agency, is dominated by the Mega Group's known members. Of the 12 names listed in the IRS filing as board members of Birthright Israel, at least 8 are publicly identified members of the Mega Group (based on a lone published profile of the group, that appeared in the Wall Street Journal in 1998). There is no reason to believe that the other four directors are not members as well, but this has not been confirmed, and most members of the super-secret steering committee are chary about discussing their affiliation, or anything else about Mega.
Who's Who in the Birthright Israel Foundation

The two co-chairmen of Birthright Israel are Mega co-founder and booze baron Charles R. Bronfman and Michael Steinhardt.

http://www.larouchepub.com/other/2003/3 ... bucks.html

[CrackSmokeRepublican]

Big Oil's Central Asian Mafia

April 29, 2012

Source: Dean Henderson

(Excerpted from Big Oil & Their Bankers: Chapter 17: Caspian Sea Oil Grab)

According to Kurt Wulff of the oil investment firm McDep Associates, the Four Horsemen, romping in their new Far East pastures, saw asset increases from 1988-1994 as follows: Exxon Mobil- 54%, Chevron Texaco- 74%, Royal Dutch/Shell- 52% and BP Amoco- 54%. Big Oil had more than doubled its collective assets in six short years.

This quantum leap in global power had everything to do with the takeover of the old Soviet oil patch and the subsequent impoverishment of its birthright owners.

While the Four Horsemen gorged on Russian and Central Asian oil, Wall Street investment bankers were facilitating the oil grab and ripping off the Russian Treasury.

Salomon Smith Barney's Philbro Energy oil trading subsidiary set up shop in Moscow. Goldman Sachs was hired by Yeltsin to lure foreign capital to Russia. Heading the Russian Goldman Sachs team was Robert Rubin, later Clinton Secretary of Treasury & Citigroup CEO. CS First Boston took a 20% stake in Lukoil, in partnership with BP Amoco.

Russian Deputy Prime Minister Yegor Gaidar was in charge of Russia's IMF-mandated economic reforms. Gaidar knew that the oil and gas sector was the key to Rubin's plan. Russian opposition parties cried foul, saying US economists and the IMF were taking control of Russia's economic and political system.

In 1994 Clinton FBI Director Louis Freeh, flaunting Constitutional restraints, personally opened an FBI office in Moscow. [1]

In 1997 Freeh's FBI led a half-hearted investigation into a growing conflict of interest scandal involving top-level Harvard economists who had been overseeing Russia's privatization program in tandem with Rubin and Gaidar. Russia criticized the FBI probe, calling it a whitewash of the facts.

The controversy centered on the Harvard Institute for International Development (HIID), which ran several of Russia's privatization schemes. HIID Directors Jonathan Hay and Jeffrey Sachs held investments in multinationals which benefited from an $89 million World Bank loan to Russia which HIID had arranged.

Russia's top securities regulator Dmitry Vasiliev spotted this and other irregularities, terminating HIID's contract with the Russian government. [2] But not before the Wall Street investment bankers had looted the Russian Treasury, leading to the Russian economic collapse of 1998.

In 1999 the Bank of New York, which worked with CS First Boston in selling off Russian ownership in Lukoil, was indicted by a New York court for laundering over $10 billion in drug money for Russian mobsters, all of whom held Israeli passports. According to Dr. Aldo Milinkovich, consultant to numerous New York financial firms, "The Israelis have infiltrated and manipulated the post-Soviet economy in Russia in pretty much the same way they have infiltrated and now manipulate Washington and Wall Street."[3]

At the center of the scandal was Bill Casey Hardy Boy Itzak "Bruce" Rappaport. He set up clearing affiliate Benex, which laundered drug money for three wealthy Russian/Israeli bankers.

Mikhail Khodorkovsky was one of the wealthiest people in Russia. He ran Menatep Bank until it was shut down. In November 2003, Russian President Vladimir Putin ordered a crackdown on Khodorkovsky, relieving him of his controlling share in Yukos Oil.

Shlomo Mogulevich has been called the "Meyer Lansky of Russia" and was described by US law enforcement as a major arms and drugs trafficker.

Konstantin Kagalovsky was in charge of doling out IMF/World Bank funding to the Yeltsin government. [4] All three held Israeli citizenship.

Rappaport, the National Bank of Oman crony, began buying Bank of New York shares during the 1980's. He set up Bank of New York-Intermaritime in Geneva. The company owns Swiss American Holdings, SA Panama, which the US government identified as key to a 1998 money laundering scandal involving Antigua Prime Minister John Fitzgerald. [5]

Rappaport arranged US financing for purchase of an Antigua melon farm by an Israeli Mossad agent named Sarafati. The Israeli Defense Ministry funneled arms through Rappaport and Sarafati's farm to Columbian cocaine kingpin and death squad godfather Jose Gonzalo Rodriguez Gacha.

Mossad and British commandos trained Medellin Cartel death squads in a CIA program funded by President Reagan's much-touted Project Democracy.

The Panamanian ship Sea Point that delivered Gacha his weapons was owned by CIA's hand-picked Panamanian President Guillermo Endara, who was installed after the Noriega putsch. In 1989 that same ship had been busted off the Mexican coast carrying a massive shipment of cocaine. Endara and Gacha co-owned the Panamanian drug laundry Banco Interoceanico. [6]

Corruption was the modus operandi during the economic privatization of Russia, the Caucuses and Eastern Europe. In 1996 Ukraine's government-owned aircraft factory sold a small fleet of Antonov-32B twin-engine turboprops to Columbia cocaine cartels. [7]

In 1997 Pratt & Whitney, subsidiary of US defense giant United Technologies, was fined $14.8 million for diverting $10 million in US military aid into a slush fund controlled by Israeli Air Force officer Rami Dotan. Saudi billionaire Sulaiman Olayan owned a big chunk of United Technologies, as did James Baker. The slush fund was used for CIA/Mossad destabilization efforts in Central Asia. [8]

A 1997 Russian FSB report cited Alfa Group for involvement in drug trafficking. Top company executives had met with representatives of the Cali Cartel. The report stated that Alfa worked with a Chechen crime family, which was in charge of the drug smuggling. An Alfa Group subsidiary is Tyumen Oil, which teamed up with Brown & Root in an oil and gas development project that received ExIm Bank financing. [9] Brown & Root is a subsidiary of Halliburton, where Dick Cheney was Chairman and CEO at the time.

In mid-February 2001 Alfa Group bought Marc Rich Holdings from its namesake fugitive Israeli financier. Rich lives in Switzerland after being pardoned by President Clinton as he exited the White House. Rich is an associate of Rappaport.

Halliburton and its subsidiaries received $3.8 billion in federal contracts and taxpayer-insured loans from 1996-2000. [10] On July 9, 2002, amidst a tidal wave of corporate accounting scandals, the Washington D.C.-based Judicial Watch filed suit in Dallas charging Cheney and other Halliburton directors with making millions selling stock options while cooking the Halliburton books just before the company's share price plummeted. The SEC announced its own investigation of Halliburton the same day, but nothing came of it.

Chechen Drug Lords

As Saudi Taliban backer Sheik Khalid bin Mahfouz' Nimir Petroleum dug into Kazakhstan oil fields with Chevron Texaco, the Unocal-led Centgas was offering to pay the Afghan Taliban government $100 million a year to run their pipeline across Afghanistan in a deal orchestrated by Unocal adviser Hamid Karzai- now Afghanistan's President.

Centgas arranged high-level meetings in Washington between Taliban officials and the State Department via Unocal insider and President Bush Jr. NSA Zalmay M. Khalilzad, now US Ambassador to US-occupied Iraq. In 2005 Chevron Texaco bought Unocal.

Bush blocked US Secret Service investigations into US-based al-Qaeda terrorist sleeper cells while he continued to negotiate secretly with Taliban officials. The last meeting was in August 2001 just five weeks before 911.

Bush Administration and Saudi officials offered aid to the Taliban to seal the Four Horsemen deal, telling the Islamists, "You either accept our offer of a carpet of gold, or we bury you under a carpet of bombs."[11]

In 1997 Zbigniew Brzezinski, graying but not straying from his role as go-between for the international banking houses and their global intelligence networks, wrote The Grand Chessboard: American Primacy and its Geopolitical Imperatives. In his book the BP Amoco board member suggested that the key to global power lies in the control of Eurasia and that the "key to controlling Eurasia is controlling the Central Asian Republics". He singled out Uzbekistan as key to controlling Central Asia.

In 1999 a series of explosions rocked the Uzbek capital of Tashkent. Islamic al-Qaeda-trained militants were to blame. The rebels, who call themselves the Islamic Party of Turkistan, attempted to assassinate socialist President Islam Karimov.

They attacked the fertile Fergana Valley in an attempt to disrupt harvests and the Uzbek food supply, Pink Plan-style. Two years earlier Enron had attempted to negotiate a $2 billion deal with the Uzbek state-owned Neftegas with help from the Bush White House. [12]

When that effort and other privatization attempts were rebuffed in 1998 by Tashkent, the Islamist attacks on Uzbekistan were ratcheted up.

After the "carpet of bombs" began raining down on neighboring Afghanistan in October 2001, Uzbekistan, along with neighbors Kyrgyzstan and Tajikistan, was soon sporting new US military bases. In 2005 Kyrgyzstan's President Askar Akayev was deposed in the "Tulip Revolution". Within days Donald Rumsfeld was meeting with the new leaders. [13]

The timing of both Brzezinski's book and Bush Administration threats to the Taliban are instructive since both occurred prior to the 911 attacks, the perfect pretext for the massive Central Asian intervention that Brzezinski, Bush and their Illuminati bosses were advocating.

Dr. Johannes Koeppel, former German Defense Ministry official and adviser to NATO Secretary General Manfred Werner, explained of this rash of "coincidences" in November 2001, "The interests behind the Bush Administration, such as the Council on Foreign Relations, the Trilateral Commission and the Bilderberger Group, have prepared for and are now implementing open world dictatorship (which will be established) within the next five years. They are not fighting against terrorists. They are fighting against citizens."

Central Asia came to produce 75% of the world's opium just as the Four Horsemen and their CIA guard dogs were moving into the region. While the US issues humiliating certifications to judge countries on their ability to stop drug traffic, Big Oil produces 90% of the chemicals needed to process cocaine and heroin, which CIA surrogates grow, process and distribute. CIA chemists were the first to produce heroin.

As Ecuadorian Presidential Candidate Manuel Salgado put it, "This world order which professes the cult of opulence and the growing economic power of illegal drugs, doesn't allow for any frontal attack aimed at destroying narco-trafficking because that business, which moves $400 billion annually, is far too important for the leading nations of world power to eliminate

. The US...punishes those countries which don't do enough to fight against drugs, whereas their CIA boys have built paradises of corruption throughout the world with the drug profits."[14]

The Afghan "paradise of corruption" yielded 4,600 metric tons of opium in 1998-1999. When the Taliban cracked down on opium production poppy fields bloomed to the north where CIA/ISI-sponsored Islamists were fighting in Tajikistan, Uzbekistan, Chechnya, Dagestan and Kashmir. Pakistani writer Ahmed Rashid says the Saudis paid the moving bill. [15]

The US had harassed socialist India for decades, using Kashmiri fundamentalists based in Pakistan. It was no coincidence that the proposed Enron pipeline to their Dabhol, India white elephant was to run right through the heart of Kashmir.

Ever since Russian Foreign Minister Yevgeny Primakov proposed a "strategic triangle" between India, Russia and China as a counterbalance to "US global hegemony" in 1998, US establishment think tanks have been scratching their heads at how to derail the idea. The Harvard-linked Olin Institute proposed attacking India, the weakest part of the triangle.

Not content with the Polish Solidarist-led grab of Eastern Europe and the partitioning of Soviet Central Asian republics, the CFR/Bilderberger crowd now used mujahadeen surrogates to further squeeze Russia.

In 1994 35,000 Chechen fighters were trained at Amir Muawia camp in Afghanistan's Khost Province, the camp Osama bin Laden built for the CIA. In July 1994 Chechen Commander Shamil Basayev graduated from Amir Muawia and was sent to advanced guerrilla tactics camp at Markazi-i-Dawar, Pakistan.

There he met with Pakistani ISI officials, who have historically excelled at carrying out the CIA's dirty laundry. [16] The other Chechen rebel Commander was Saudi-born Emir al-Khattab.

The Chechen Islamists took over a big chunk of the Golden Crescent heroin trade, working with Chechen crime families affiliated with the Russian Alfa Group that did business with Halliburton. They also had ties to the Albanian heroin labs being run by the NATO-backed Kosovo Liberation Army.

A Russian FSB report stated that the Chechens began buying real estate in Kosovo in 1997, just prior to the US-led partition of Kosovo from Yugoslavia. Chechen Commander Emir al-Khattab set up guerrilla camps to train KLA Albanian rebels.

The camps were funded by the heroin trade, prostitution rings and counterfeiting. Recruits were invited by Chechen Commander Shamil Basayev and funded by the House of Saud Muslim Brotherhood Islamic Relief Organization. [17]

On September 20, 2002, after emerging from a White House meeting on Iraq with President Bush, Russian Foreign Minister Igor Ivanov dodged all questions regarding another round of US harassment targeting Iraq. Instead he stated that the al Qaeda-trained Chechen rebels still targeting his country were being given safe-haven by the closest US ally in Central Asia- the government of Georgia.

In 2003 the National Endowment for Democracy & other CIA-front NGOs sponsored the phony Rose Revolution, which brought IMF stooge Mikheil Saakashvili to power in Georgia. The Four Horsemen's strategic Baku-Tblisi-Ceyhan pipeline would eventually run right through the Georgian capital Tblisi.

A month later Chechen rebels strapped with explosives entered a Moscow theater, taking hundreds hostage. The timing was interesting, since the Russians were refusing to go along with Bush's plans to invade Iraq. Nearly 200 people died after Russian Special Forces stormed in to overtake the Chechens.

The US news media, fixated on al Qaeda's every move just months earlier, ignored the link between the Chechens and their bin Laden-led cohorts. Instead they blamed the Russians.

A week after the incident Chechen warlord Shamil Basayev claimed responsibility for the siege on a rebel website. [18] Kremlin officials saw Basayev's comments as a smokescreen to protect Chechnya's elected leader Aslan Maskhadov, who was on his way to Sweden to take part in a conference on Chechnya. Basayev was killed in Ingushetia in July 2006.

For all the hoopla over the Caspian Sea oil bonanza and after all the CIA-bred carnage wrought upon the region of Central Asia and the Russian Republic on behalf of the Four Horsemen, the huge deposits of black gold may not materialize.

According to BP's Statistical Review of World Energy 2003, the two countries which Big Oil had counted on to become the next Saudi Arabia – Azerbaijan and Kazakhstan – have proven oil reserves of only 63 billion and 26 billion barrels, respectively.

The report also stated that Russia itself, torn asunder by Big Oil and their spooks, possessed a mere 22 billion barrels of crude reserves. It is also possible that BP is lying, using the phony "peak oil" shortage argument to rationalize gauging consumers.

Whatever the case, tired of Four Horsemen scams, since 2005 a now wide awake Russia has been steadily re-nationalizing its energy sector.


[1] "Legendary FBI Director Sets Up Shop in Moscow". USA Today. 7-5-94

[2] "Russia Cuts Harvard Links in Flap, Throwing Aid Programs into Disarray". Steve Liesmen & Robert Keatley. Wall Street Journal. 6-2-97. p.A19

[3] "Israelis Behind Bank of New York Scam". Martin Mann. The Spotlight. 9-6-99. p.5

[4] Ibid.

[5] "US Fails to Recover Drug Money in Antigua". Michael Allen. Wall Street Journal. 11-2-98. p.A27

[6] Dope Inc.: The Book That Drove Kissinger Crazy. Editors of Executive Intelligence Review. Washington, DC. 1992 p.19

[7] "Ukraine Leasing Aircraft to Columbian Drug Traffickers". Los Angeles Times. 2-19-96

[8] "Pratt & Whitney to Settle Israeli Slush Fund Case". Missoulian. 5-21-97

[9] Center for Public Integrity. January 2000.

[10] Ibid

[11] Bin Laden: The Forbidden Truth. Jean-Charles Brisard and Guillaume Dasquie. Paris 2001

[12] "Central Asia Unveiled". Mike Edwards. National Geographic. 2-02

[13] Reaping the Whirlwind: The Taliban Movement in Afghanistan. Michael Griffin. Pluto Press. London. 2001. p.124

[14] "The Geostrategy of Plan Columbia". Manuel Salgado Tamayo. Covert Action Quarterly. Winter 2001. p.37

[15] Taliban: Militant Islam, Oil and Fundamentalism in Central Asia. Ahmed Rashid. Yale University Publishing. New Haven, CT. 2001.

[16] "Who is Osama bin Laden?" Michel Chossudovsky. www.copvcia.com 12-17-01

[17] Ibid

[18] "Rebel Warlord Takes Credit for Theatre Seige". Springfield News Leader. 11-2-02

Dean Henderson is the author of Big Oil & Their Bankers in the Persian Gulf: Four Horsemen, Eight Families & Their Global Intelligence, Narcotics & Terror Network, The Grateful Unrich: Revolution in 50 Countries and Das Kartell der Federal Reserve.  Subscribe to his Left Hook weekly column FREE at www.deanhenderson.wordpress.com

http://blacklistednews.com/?news_id=19227&print=1

[CrackSmokeRepublican]

George Soros and the Rothschilds Connection
   
By Jan Von Helsing
 
("Secret Societies and their Power in the 20thCentury") Special Note : The author of this book is German. He claims he has several jewish friends and is not racist or prejudice, but often cites the Talmud as a guide book for certain Jews and discusses a Jewish Conspiracy that involves elements of Zionism and other conspiracy issues as well. I do not agree wholeheartedly with the author's entire beliefs, however alot of the research on a variety of  other topics is VERY GOOD. We are seeking truth here and not Hatred or prejudice, as a matter of  FACT, I was raised Jewish myself. For my views on the Jewish Conspiracy, you will have to go Here  to find out, this is not the forum.

    The now 64 year old Hungarian with a U.S. passport is the superstar amidst the great speculators. When the last "Forbes" list of the best paid managers and financiers was published, Soros was in the lead by a huge margin. In the last year he earned 550 million US$, twenty times as much as the Disney Boss. When Soros opens the hunt, the international money markets get moving and the reserve banks start worrying. In Sept. 1993 he succeeded over the Bank of England. He was certain the Bank would have to take the pound that came under pressure out of the European exchange mechanism  and devalue it. He gambled 10 Billion US$ --with success. He made 1 Billion US$, which the British taxpayers now have to come up with. He himself likes to be openly known as the man who wants to influence the big money markets of the world. This is a very unusual stance for an investor to take, who should rather be interested in using situations unobservantly that the competitors have not yet discovered. In March 1993, Soros' activities became known when he predicted a rise in the price of gold. It is assumed --since this started a buying spree in precious metals --that this drove the price up 20% over the highest price since the Gulf War. In the beginning of June 1993, he wrote an open letter to the business editor of the London Times, Anatole Kaletsky, announcing that he intended to urge the money markets to sell large amounts of German government bonds in favor of French stocks. Which means: Down with the German mark and attack on the Bundesbank!
   
    In several newspapers across the world Soros is praised as a kind of "Robin Hood of the Computer Age", since by speculation he takes from the rich nations in grand style to hand out to Eastern Europe and Russia via several Soros Foundations, to prepare the way for "Democracy" in those "poor" countries that had been bled dry by communism.
   
    Who then is Soros? The official story says that he was born in 1930 to Jewish parents and as a teenager had been chased from Budapest by the Nazis. He enrolled at the "London School of Economics" and in the mid-50's came to the U.S. There he was magically drawn to Wall Street, but his career until 1969 was unspectacular. Then with a partner he took over an investment fund. He sold stocks he didn't own as futures, hoping that their price would fall nearer the qualifying date and that he could aquire them at a price lower than his selling price.    
   
   From this fund the "Quantum Group" evolved, a family of investment funds operating from the Dutch West Indies. Quantum is one of the most impressive "investment machines" in the world. In 8 of the last 24 years it made an "official" profit of over 50%, in 2 of those years even over 100%. In the meantime Soros handed business over to a group of managers and limits himself to designing the "great campaigns". He put down his princples in the book, "The Alchemy of Finance", where he says what "financial speculators think more important than real economic facts".
   
    But this is but the picture the media -- and we know who owns them --paint of him. Who is he in
reality?

    William Engdahl knows this to say about him:
   
    "Soros speculates on the world's financial markets via his secret off-shore company, "Quantum Fund NV", a private "investment fund" that handles a portfolio of 4 to 7 Billion US$ for several "clients". The Quantum Fund is registered in the tax haven of the Netherland Antilles in the Caribbean. In order to evade control of his financial activities by the U.S. administration not a single U.S. citizen sits on the board of Quantum. It's directors are a curious mixture of Swiss and Italian financiers...     Soros has been identified as a front man of the Anglo-French Rothschild banking group. Understandably neither he nor the Rothschilds want this important fact to be public, so the tight links to his friends in the London "City", in the British foreign ministry, in the state of Israel and to his mighty friends in the American establishment would stay concealed."    
   
   Among the members of the board of the Quantum Fund is one Richard Katz. He is, at the same time, head of the "Rothschild Italia S.p.A." in Milan and is also on the board of the commercial bank "N.M. Rothschild and Sons" in London. Another member of the board is Nils O. Taube. He is a partner in the London investment group "St. James Place Capital" which counts Lord Rothschild among it's main partners. A frequent partner of Soros in several of his speculations --especially in the driving up of the gold quotation-- is Sir James Goldsmith, a relative of the Rothschilds dynasty. On the board of Quantum we also find some heads of some highly "discreet" Swiss private banks (who help the syndicates of organized crime--weapons and drugs--to launder their money). Then there is Edgar D. de Picciotto, head of the Geneva private bank "CBITDB Union Bancaire Privee", a main player on the gold and investment markets, Isidoro Albertini, head of the Milan stockbroking company "Albertini and Co.", Beat Notz of the private bank "Banque Worms" at Geneva, Alberto Foglia, head of the Banca del Ceresio" at Lugano. In the course of the recent political corruption scandals in Italy it was found that several Italian politicians kept their money at the "Banca del Ceresio". Apparently Soros had more than just insider knowledge about the weal points in Italian politics when he attacked the lira in Sept. 1994.
   
    William Engdahl explains :
   
   "Soros' connection to the ultra-secret international finance circles of the Rothschilds is not just an ordinary or accidental banking connection. The extraordinary success Soros has on the high-risk financial markets cannot simply be explained with "gambler's luck". Soros has access to the "insider track" of the world's most imporatnt information channels, both government and private.
   
    Ever since the Second World War the Rothschild family tried to disseminate an aura of insignificance about themselves. But behind this one of the mightiest and most obscure financial groups of the world. The Rothschilds spend alot of money to cultivate the picture of a wealthy aristocratic family leading a quiet life where one loves French wines and another engages in charitable trusts.
   
    To experts on the "City" N.M. Rothschilds and Sons is most influential in the faction of the British secret service establishment closely linked with the neo-liberal Thatcher wing of the Tory party. In the 80's N.M. Rothschild & Sons made several Billion US$ from the privatization of British state-owned industries they conducted for Mrs. Thatcher. The Rothschild bank is also at the center of world gold trade: In this bank the gold price is fixed twice a day by the five most influencial gold trading banks.
   
    But N.M. Rothschild & Sons is also entangled in some very dirty secret service operations dealing with "drugs vs. arms". Because of it's good relations to the highest places in the British secret service the Rothschilds succeeded in preventing their complicity in one of the worst illegal secret service networks, the BCCI (Bank of Credit and Commerce International) was never mentioned.
   
In reality the Rothschilds bank belonged to the inner circle of these international money laundering banks of the CIA and M16 that financed in the 70's and 80's CIA projects like the "Contras" in Nicaragua".

    William Engdahl : "Was stecht hinter den Wahrungskriegen des George Soros? (What Is Behind the Currency Wars of George Soros?), EIRNA-Studie "Derivate -Die finanzielle Wasserstoffbombe der 90er Jahre" (Derivatives --The Financial Hydrogen Bomb of the 90's).
   
    The influencial Chairman of the Banking Commission in the U.S. House of Representatives, Henry Gonzales, chided the Bush and Reagen administrations for refusing to prosecute the BCCI. In addition the Dept. of Justice repeadedly declined to co-operate in the Congressional investigations into the BCCI scandal and the closely linked scandal of the "Banco Nazional del Lavoro" (BNL). This bank had made billions of dollars from loans that Bush had granted the Iraqi government shortly before the Gulf War. Gonzales had said that the Bush administration had had a Department of Justice  which he thought "the most corrupt, most unbelievably corrupt Department of justice that I have ever experienced during my 32 years in Congress".
   
    After the BCCI had been openly accused in the media for transgression of several laws, the New  York prosecuting attorney Henry Morganthau announced official charges against the BCCI.  Morganthau accused the BCCI of the "biggest banking fraud of the financial world. The BCCI during it's 19 year history operated as a corrupt criminal organization."
   
    One of the directors of the BCCI, the Saudi-Arabian Shiekh Kamal Adham, had been the head of  the Saudi secret service during the time Bush headed the CIA. (There's the 19 "Arab" hijackers--CSR)
   
    Not a single Western newspaper has so far uncovered the fact that the Rothschilds group linked with George Soros was at the hub of the vast illegal network of the BCCI. The key person in these activities was Dr. Alfred Hartmann, the managing director of the Swiss branch of the BCCI (Banque de Commerce et de Placement SA), head of the Zurich Rothschild bank AG and member of the  board of N.M. Rothschild & Sons in London. He was also on the board of the Swiss branch of the  Italian BNL and was vice-chairman of the "N.Y. Intermaritime Bank" in Geneva. A friendly secret service man who had worked on the "Soros" case disclosed that in Sept. 1993 Soros had amassed  along with a group of "silent partners", a fortune in excess of 10 Billion dollars to use as a lever to  unhinge the European currencies. Among the partners apparently were the little known metal and oil dealer Marc Rich and the Israeli arms dealer Shaul Eisenberg. For decades Eisenberg has been working for the Israeli secret service and has important arms deals in all of Asia and in the Near East. A third partner of Soros is Rafi Eytan who before was the Mossad connection to the British secret service in London.  
   
    Basically George Soros is another tool for economic and political warfare in the hands of the  Rothschilds. He is among those circles who three years ago started a malicious "Fourth Reich"  campaign against the re-united Germany: Soros is very anti-German. In his 1991 autobiography "Underwriting Democracy" Soros warned of the danger that a reunited Germany could disturb the  (power) balance in Europe...It is easy to see how the situation that existed between the wars could  come up again. A reunited Germany becomes the strongest economic power and developes Eastern Europe as it's habitat.... a terrible "witches brew".
   
    His US contacts put Soros very close to the financial and secret service circles around George  Bush. His most important deposit bank and main lender during his attack on the European monetary  system in Sept. 1993 was CITICORP, America's largest bank. Soros called upon the international investors to unhinge the Deutsche Mark. When in late 1989 a reunification became probable, a high  ranking Citicorp manager who before had been advisor in the Dukakis campaign said: "German unity will be catastrophic for our interests. We have to take action to insure a decline of the Deutsche  Mark by about 30% so that Germany will not be able to built up Eastern Germany to become the  economic factor within a new Europe."     According to his associates Soros has "an incredible ego". He descibed how during the war in occupied Hungary he could not have survived as a Jew, so he had taken on a second identity. What he did not say, however, was that he let a man shield him from persecution who did wealthy Jews out of their possessions, and that Soros lent him a hand. This is how he"survived" the war, leaving Budapest only two years after it had ended. Although he himself and the Jewish owned media are quick in attacking all his opponents, especially in Eastern Europe, asanti-semitic, his Jewishness is based on parts of the Talmud rather than on his links with Jewish religion or the Jewish people.    
   
   Outwardly Soros supports a whole spate social activities, like"peace concerts" with Joan Baez, stipends in Oxford for young Eastern Europeans etc..    (so then on to the big crook assassin sodimist Clinton....Saba note).    
   
   http://www.freedomdomain.com/soros01.html

[CrackSmokeRepublican]

This is global Jew Corruption and Control central... a corporate "Protocols of the Elders of Zion" in action daily affecting "Goyim" globally.   Jew run firms like this are largely behind the commodities inflation that led to the "Arab Spring".  They are likely working hand in glove with the Israeli government in state sponsored dirty money-laundering.  --CSR

Special Report on Glencore: The Biggest Company You Never Heard Of

Logos are seen in front of Swiss commodities trader Glencore building in Baar near Zurich January 5, 2010. Credit: Reuters/Christian Hartmann

BAAR, SWITZERLAND (Reuters) – On Christmas Eve 2008, in the depths of the global financial crisis, Katanga Mining accepted a lifeline it could not refuse.

The Toronto-listed company had lost 97 percent of its market value over the previous six months and was running out of cash. Needing to finance its mining projects in the Democratic Republic of Congo — a country which has some of the world's richest reserves of copper and cobalt — Katanga's executives had sounded the alarm and made a string of calls for help.

Global credit was drying up, the copper market had fallen 70 percent in just five months, and Congo — still struggling to recover from a civil war that killed some five million people – was the last place an investor wanted to be.  

One company, though, was interested. Executives in the wealthy Swiss village of Baar, working in the wood-panelled conference rooms in Glencore International's white metallic headquarters, did their sums and were prepared to make a deal. Their terms were simple.

They wanted control.

For about $500 million in a convertible loan and rights issue, Katanga agreed to issue more than a billion new shares and hand what would become a stake of 74 percent to Glencore, the world's biggest commodities trading group. Today, with copper prices regularly setting records above $10,000 a tone, Katanga's stock market value is nearly $3.2 billion.

Deals like Katanga have helped turn Glencore into Switzerland's top-grossing company and earned it comparisons with investment banking giant Goldman Sachs.

In the world of physical trading — buying, transporting and selling the basic stuff the world needs — Glencore is omnipresent and controversial, just as Goldman is in banking. Bigger than Nestle, Novartis and UBS in terms of revenues, Glencore's network of 2,000 traders, lawyers, accountants and other staff in 40 countries gives it real-time market and political intelligence on everything from oil markets in Central Asia to what sugar's doing in southeast Asia. Young, arrogant, and often brilliant, its staff dominate their market. The firm's top executives have forged alliances with Russian oligarchs and well-connected African mining magnates. Like Goldman, Glencore uses its considerable heft to extract the best possible terms in every deal it does.  

Some might add that Glencore also fits the description that Rolling Stone magazine gave to Goldman: "a great vampire squid wrapped around the face of humanity".

Sometime in the coming weeks, Glencore is likely to announce its Initial Public Offering. The firm currently operates as a privately held partnership, with staff sharing the profits according to a performance-based incentives scheme. Sources familiar with Glencore's plans say it may list 20 percent of the company, possibly split between the London Stock Exchange and Hong Kong. Such a listing could yield up to $16 billion and value the firm at as much as $60 billion.

Fueled by the lofty prices in many of the raw materials that Glencore buys, mines, ships and sells, the float would be among the biggest in London's history. It could launch the firm onto the FTSE 100 index alongside resource giants such as BHP Billiton, Rio Tinto, and Royal Dutch Shell and from there into the pension funds and investment portfolios of millions of people who know virtually nothing about the secretive giant. It would also represent a huge payday for investment banks — perhaps $300 to $400 million, according to estimates by Freeman & Co., a mergers and acquisitions consultancy.

At the same time, it would force a company that for four decades has thrived outside the limelight to reveal some of its secrets. Can it withstand becoming a household name? Does it risk losing its prized traders? Given Glencore's impeccable timing in deals, is an IPO a certain sign that we've reached the top of the commodities cycle?

"Their knowledge of the flow of commodities around the world is truly frightening,"

says an outsider who has worked closely with senior Glencore officials and who, like most people interviewed by Reuters for this report, declined to be identified speaking about the company for fear it could jeopardize sensitive business relationships. Glencore executives declined to comment on the record, though the company did issue a statement about its current disclosure policy.

UNDER THE RADAR

Nestling in a lakeside village in Switzerland's low-tax canton of Zug, Glencore's starkly modern headquarters reflect a culture where trading aggression is coupled with public discretion. In front of the building a simple concrete sculpture — a sphere spinning atop a pyramid — hints at Glencore's global reach. Inside, the hushed hallways are adorned with modern art, the offices eerily quiet.

"Glencore is looked on as guys screaming into telephones, but it's more the dull old business of logistics," says a mining industry source, describing hours spent on the phone and organizing trade-related paperwork. "Glencore trading floors are more akin to DHL offices than Goldman Sachs."

Yet within the commodities and mining sectors, Glencore is regarded with a mix of admiration and fear. "It's an incredibly performance-based culture — investment banking times three, probably," says a second outsider.

Glencore's client list is a roster of the world's largest firms including BP, Total, Exxon Mobil, ConocoPhilips, Chevron, Vale, Rio Tinto, ArcelorMittal and Sony, as well as the national oil companies of Iran, Mexico and Brazil and public utilities in Spain, France, China, Taiwan and Japan.

Physical commodities traders, like Glencore and its main rivals Vitol, Trafigura and Cargill, make their money finding customers for raw materials and selling them at a mark-up, using complex hedges to reduce the risk of bad weather, market swings, piracy or regime change.

Unlike Chicago traders who scream out bets on the future prices of orange juice or pork bellies, physical commodity traders negotiate prices and arrange shipments of cargo quietly, keeping their positions well hidden from others.

"It's modern financial engineering meshed with an old-fashioned commodity trading house," said John Kilduff, a partner at the hedge fund Again Capital LLC in New York. "It's amazing how this formula has flown under the radar for so long, as the profits and growth of these firms has been astounding."

Glencore's profit after tax topped $4.75 billion in 2008, not far off its best year ever, 2007, when profit ran to around $5.19 billion. Even in the gruesome market of 2009, it raked in more than $2.72 billion.

Performance is rewarded on a scale that would turn even Wall Street green, with bonuses for star traders running into the tens of millions. Glencore's 500 partners and key staff are sitting on a book value of $20 billion.

The secret, says the second outsider, is the traders' incredible focus. "I don't recall talking to any of these guys — and I've spent a lot of time with them — about anything other than business," he told Reuters. "I have no idea what sort of family life these guys have. This is everything."

Employees are hired young and expected to make a career at the group, where they are known as either "thinkers" — bright number-crunchers who design the company's complex financial deals — or "soldiers", the hard-driven traders who fight to win the transactions.

The company's 10 division managers are aged 37 to 52 and remain largely anonymous outside Glencore's business circles. "They're really bright guys, they are really focused, they play to win every day," says a mining executive in North America. Or as the second outsider puts it: "They look like kids, really — but they are incredibly impressive individuals."

Nobody more so than Chief Executive Ivan Glasenberg, a lean publicity-shy operator whose sport is race-walking. Glasenberg, 54, grew up in South Africa and has been a champion walker for both South Africa and Israel. Each morning he runs or swims, often with colleagues. "The thing about Ivan, he can fly in and meet presidents of countries but he also talks to the guy on the trading floor," said Jim Cochrane, chief commercial officer and executive director of the Kazakh mining group ENRC.

After earning an MBA at the University of Southern California in 1983, Glasenberg was hired by Glencore as a coal trader in South Africa. He does not suffer fools and has a fiery temper, but is also intensely charming and has a sharp memory for details about people, according to people who know him. Despite being a billionaire in charge of thousands of staff, "this is a guy that picks up his own phone," the second outsider said.

THE MARC RICH LEGACY  

Glencore likes to promote from within and build a kind of closed, self-sustaining network of senior traders, a culture encouraged by the company's founder Marc Rich. Not that Glencore likes to mention Rich, a figure so notorious that he's not even mentioned in the official history on Glencore's website.

Rich escaped Nazi Europe as a seven year old, and grew up in the United States. He launched the trading group which would become Glencore under his own name in 1974.

Rich was a sensation in commodity circles — he is credited by some with the invention of the spot market for crude oil — but by 1983 U.S. authorities had charged him with evading taxes and selling oil to Iran during the 1979-81 hostage crisis and Rich fled to Switzerland where he lived as a fugitive for 17 years.

Rich has always insisted he did nothing illegal and he was officially pardoned by Bill Clinton on the President's last day in the White House in January 2001. Among those who lobbied on his behalf were Israeli political heavyweights Ehud Barak and Shimon Peres, according to "The King of Oil", a book about Rich by journalist Daniel Ammann. In the book — written after interviews with Rich – the trader admits supplying oil to apartheid South Africa, bribing officials in countries such as Nigeria and assisting Mossad, Israel's intelligence agency. In the time of the Shah, Rich says, he engineered a deal for a secret pipeline through which Iran could pump oil to Israel.

"(Rich) was faster and more aggressive than his competitors," Ammann told Reuters last year. "He was able to recognize trends and seize opportunities before other traders. And he went where others feared to tread — geographically and morally. Trust and loyalty are very important to him. In many deals he wouldn't rely on contracts but on the idea that 'my word is my bond'."

Living as a fugitive put a strain on Rich, but according to Ammann, it was a business blunder in 1992 that paved the way for the power struggle that ended his connection with the trading house he had founded. Rich spent more than $1 billion trying in vain to control the zinc market. His bid failed and with $172 million in losses, the firm was close to collapse. Rich was ultimately forced to sell out to his management and hand over control to a former metals trader, the German Willy Strothotte.

The forced sale, in 1994, netted Rich a reported $480 million. He picked up an extra $120 million when the firm was revalued and he learned its new owners had broken their side of the deal by secretly selling on around 20 percent of the stock. Fifteen years ago, then, his majority stake in the company translated into about $600 million. Today the company is worth $60 billion, according to Liberum Capital.

The company was reborn under Strothotte as Glencore. It has never said where the name comes from but some have speculated it might be an amalgam of the first two letters of the words "global, energy, commodities and resources".

The firm continued to trade, make money — and occasionally become implicated in controversial dealings. It was one of dozens accused of paying kickbacks to Iraq in 2005 by a commission that probed the United Nation's Oil for Food program. But while Dutch-based rival Vitol was fined $17.5 million after pleading guilty, a preliminary judicial investigation into Glencore by Switzerland's attorney-general found a "lack of culpable information". Glencore maintained that if any payments were made by agents it did not know or approve of them.

The impulse to seize opportunities that others don't see, or decide to avoid, lives on. Could a flotation shed unwanted light on the business methods that have so far stayed under the radar?

A SIGNATURE DEAL

Glencore's Christmas swoop on Katanga Mining was something of a signature deal for the firm, proof that it can use its role as the trading world's biggest middleman to its advantage. The company is always on the prowl for opportunities to sell producers' output. But it also likes to set things up so that when markets tumble, it's ready to buy those same producers outright.

Katanga had just the right combination of elements: relationships built over time, a project in need of funds and an exclusive marketing agreement, and the scope for equity participation. The losers, in this case, would be the company's minority shareholders, most of whose holdings were diluted by over 800 percent.

The acquisition was the culmination of 18 months of deal-making in Congo, where the first freely elected government in four decades had embarked on a sweeping review of mining licenses granted by previous regimes.

Workers in Congo's southeast copper belt had battled for two years to rebuild what had once been Africa's richest copper mines, but were now littered with rusted hulks. In 2007, when markets had been riding high on cheap credit and commodity prices boomed, Katanga had been the subject of a $1.4 billion hostile takeover bid by a company led by former England cricketer Phil Edmonds. It had the potential to become the world's biggest producer of cobalt — used in batteries, jet turbines and electroplating.

As the credit crisis began to bite, metals prices tanked and risky companies around the world found it ever tougher to raise finance.

Where others saw risks, though, Glencore scented opportunity. In June 2007, Glencore and partner Dan Gertler, an Israeli mining magnate, paid 300 million pounds for a quarter-stake in mining company Nikanor, which was seeking to revive derelict copper mines next to Katanga's. That deal gave Glencore exclusive rights to sell all Nikanor's output — an "offtake" agreement.

Offtake deals are common in risky projects like mining, where banks are reluctant to lend because of uncertainty about how they will be repaid. An offtake ensures a miner has customers before it starts digging, and provides a guaranteed source of raw materials to a trader, which can also act as security if the trader provides finance.

By investing in Nikanor, Glencore consolidated a powerful partnership: half of the stake it bought was on behalf of a trust linked to Gertler, an old Congo hand who industry sources say has close ties to government officials including President Joseph Kabila.

Katanga's mines were just months from producing copper and cobalt again. The mining company had spent the summer of 2007 fighting off a hostile bid from Central African Mining and Exploration Company (CAMEC), headed by Edmonds, the former cricketer. After searching fruitlessly for a "white knight" — a big miner willing to pay top dollar to fend off CAMEC — Katanga turned to Glencore.

The trading company was ready to oblige. In October it agreed to a 10-year offtake deal and a loan of $150 million that could be converted into Katanga shares. Just one month later, Katanga and its neighbor Nikanor merged, giving Glencore 8.5 percent of the enlarged firm.

In June 2008, with the global financial crisis deepening, Katanga Chief Executive Art Ditto resigned for "personal reasons". Glencore, exercising a clause from its earlier Nikanor purchase, appointed a caretaker chief executive. It was then that Katanga embarked on its increasingly desperate search for new funds.

Issuing a statement that said it was "in serious financial difficulty", Katanga struck its deal with Glencore, which added $100 million plus outstanding interest to its earlier loan, to give a total of $265 million. The Swiss trading firm subsequently sold on about a quarter of the loans to RP Capital, a hedge fund also linked to Gertler. Then in a linked deal that closed in July 2009, Katanga's debt burden was slashed by swapping the loans for shares alongside a $250 million rights issue. Most of that equity, too, went to Glencore.

Now Glencore had a mining complex with the potential to be Africa's biggest copper producer. To approve the arrangement, Katanga had used Toronto stock exchange rules that exempt companies in financial distress from a shareholder vote. That left most of Katanga's minority shareholdings facing a virtual wipeout from the heavy dilution, a measure they voted through in a subsequent shareholders' meeting.

"Everybody got taken down. There were a couple of savvy guys who got out early, but most people got taken for a ride. It's a sad story," said analyst Cailey Barker with Numis Securities in London.

Barker says Katanga had little choice but to accept Glencore's terms since it was probably a couple of weeks away from bankruptcy. "The only person that was left was Glencore," Barker said. "They said we'll get involved, but we'll take our pound of flesh."

This sort of deal — with the right to convert debt into equity in the tail — has proved pivotal to Glencore as it has built up its mining assets. Analyst Michael Rawlinson at Liberum Capital, who was previously an investment banker for JP Morgan Cazenove and has worked on deals in Congo for Nikanor, says the fact Glencore was on the spot is key.

"If you're someone like Rio (Tinto) or Anglo (American), often in these early-stage places you have no reason to be there, you haven't got any assets there," he says. "But if you're Glencore, you source concentrate and product from these places, you have trading relationships. They're on the ground first, so they see these opportunities first."

Glencore is constantly cutting similar deals, some of the biggest of which it already has in place with its Swiss neighbor and close affiliate Xstrata. In the space of two weeks recently, Glencore agreed offtake deals with London Mining for its Sierra Leone iron ore production and Mwana Africa for nickel output in Zimbabwe. The deals often come with, or are followed by, a financing arrangement: U.S. PolyMet Mining Corp, for instance sealed an arrangement in January that involves Glencore buying shares with the right to convert the company's debt into equity.

A NECESSARY EVIL

People familiar with the IPO planning say Glencore's top managers have yet to give a final sign-off to a float, though Citigroup, Morgan Stanley and Credit Suisse are all working on the potential transaction. The earliest possible date for a launch would be April, after first-quarter results are compiled.

It's inevitable that the timing will attract attention.

"It's almost guaranteed that when they decide to list, everyone will say they're calling the top of metals market," says analyst Tom Gidley-Kitchin at Charles Stanley in London. "Like Goldman, people will ask, 'Why are they selling now?'"

As one mining industry source puts it: "We all know that Glencore never leaves any crumbs on the table."

Like Goldman, which floated in 1999, Glencore wants the permanent capital that comes with a listing. In a private partnership, payouts to departing partners shrink the capital base, but public companies' equity remains intact even if the shares change hands at dizzying speeds.

Raising public capital would help Glencore pay out any retiring employees, whose compensation is now set to be disbursed over five years from the firm's $20 billion book value.

New equity would also reassure the big credit rating agencies, which rate Glencore debt a notch or two above "junk". The more flexible capital structure that comes with a listing should also allow it to make really meaty acquisitions.

It has long been Glasenberg's ambition to merge Glencore with London-listed Xstrata, industry sources say. The companies are already so close that the Financial Times' influential Lex column has dubbed them the "Tweedledum and Tweedledee" of their industry. Glencore owns 34.4 percent of Xstrata stock, they share a chairman, Willy Strothoffe; and Xstrata's assets could, in a stroke, fill the gaps in Glencore's portfolio to create a mining and trading powerhouse.

But when speculation surfaced last year around a Glencore-Xstrata merger, Xstrata shareholders opposed it, arguing a valuation for Glencore should be set by market forces, not agreed to behind closed doors. "It's very difficult to value Glencore because you just don't know enough about it. That's why most investors would prefer an IPO — which will give you more visibility," one of the top 10 biggest institutional investors in Xstrata told Reuters last year.

Perhaps to force things to a head, Glencore in December 2009 set the clock ticking on a change in its set-up by issuing a convertible bond. A year after picking up Katanga, the firm sold $2.2 billion in bonds that can convert into shares to a select band of investors, including energy-focused private equity firm First Reserve, Singaporean sovereign wealth fund GIC, China's Zijin Mining Group, financier Nathaniel Rothschild plus U.S. fund managers BlackRock, Fidelity and Capital Group.

The convertibles pay a staid interest rate of 5 percent a year until they mature in 2014, but carry extra incentives for Glencore to transform itself. If by December 2012 Glencore has not floated or merged with another company, bondholders can sell their bonds back to Glencore at a price which would give investors an annualized return of 20 percent — in line with the sort of returns you might expect from equities. This payment could take place from mid-2013, though Glencore will not be penalized if markets turn lower and an IPO is not attractive.

ROBUST DIALOGUE

Industry sources expect merger talks to begin about six months after the IPO. If Glencore and Xstrata do not combine forces, the two could end up competing for mining assets. That would heighten the increasingly tense relationship between their brash, strong-willed South African CEOs: Glasenberg and Xstrata's Mick Davis.

"You would expect any dialogue between them to be very robust – both of them have black-and-white views on value," says an industry source who knows both men.

Beyond Xstrata, Glencore's ambitions could soar. As a blue-chip name it would be able to compete against BHP Billiton and Rio Tinto for some of the biggest deals around.

One recent rumor, according to Liberum's Rawlinson, is that Glencore might make a play for Kazakh miner ENRC, a London-listed FTSE-100 company with a market value of $21 billion — too big to swallow now, but feasible once Glencore could issue shares as payment. Other majors would likely regard ENRC, which focuses on emerging nations including Congo, as too risky.

"I don't think any other firm would dare look at them, but Glencore would," said Rawlinson. "They know how to deal with Congo, they know how to deal with oligarchs and they already operate in Kazakhstan. So, there's a perfect example of how they'll do stuff that other people won't."

HANDCUFFS AND RISKS

But a listing would also bring a host of issues to grapple with. For one thing, Glencore will have to reassure investors that its prized traders won't just cash in and take off. People in the industry point out that traders who have accumulated large fortunes without any public attention may prefer to keep working in a private environment — perhaps at a competitor, or a trading house they set up themselves.

"I think there could be serious concerns about what happens when the very senior management receives shares," says Jonathan Pitkanen, head of investment grade research at fund manager Threadneedle. "I would expect that key individuals would have to enter into some form of golden handcuffs so they are tied to that business for an extended period of time."

There are other risks in exposing a secretive, agile business to the scrutiny of public ownership.

Glasenberg can be affable to those he knows, but he cherishes his privacy and dreads the day an IPO will force him to step into the limelight, industry sources say.

The firm would also need to appoint independent directors to its board, and would likely search for a chairman with top credentials in financial circles but no existing links to Glencore. In that light, the company's most significant departure could be Strothotte, 66, who joined in 1977 and ran the metals and minerals division before replacing Rich as CEO in 1993.

"Clearly there's going to be a sea-change once they are publicly listed, given the requirements of listings first of all, plus the complexity that you have within Glencore as well," says Pitkanen.

A big part of that would be the requirement to publicly share information that Glencore now gives only to its banks and bond investors.

Currently, "Glencore is a private company and our communications policy with the media reflects this status," the firm said in a statement to Reuters. "Full financial disclosure is made to all of the company's shareholders, bondholders, banks, rating agencies and other key stakeholders. Glencore publicly discloses aspects of the company's financial performance on a six monthly basis."

Could the glare of a public listing be less dramatic than some fear? Resource groups such as BP, which houses one of the world's biggest oil trading operations, have managed to juggle public life without revealing too much about exactly what their trading arms are up to. Gidley-Kitchen says that like many banks, a listed Glencore should also manage to keep most details of its trader compensation under the radar: "Goldmans and Barclays Capital managed to avoid revealing absolutely everything that they are doing and I would think Glencore would be able to do the same."

ACTIVIST RISKS

But that wouldn't stop activists from digging. Gavin Hayman, director of campaigns at activist group Global Witness, says information disclosed as a result of an IPO could help environmental and corruption campaigners keep track of what Glencore is doing in far-flung corners of the globe.

"Trading companies like Glencore are notoriously opaque, even by the standards of an opaque sector like natural resources. They deal with a part of the chain that is particularly prone to mismanagement, corruption and diversion," Hayman says. "Hopefully listing will bring more transparency and allow greater scrutiny of its operations, which is good news."

In one example, officials in Zambia believe pollution from Glencore's Mopani mines is causing acid rain and health problems in an area where 5 million people live. The Environmental Council of Zambia has said it is looking into "a number of complaints" regarding pollution from Mopani, but has not penalized the company for any wrongdoing.

"Smelting operations release sulphur dioxide and other pollutants which have severely affected residents with various skin, eye and respiratory diseases. Because of mining waste Mufulira has acidic and poisoned water," Mufulira town clerk Charles Mwandila told Reuters in an interview.

Mopani says it has already significantly improved environmental performance since privatization, and is following a clear and agreed plan to make further progress. "Investment to improve environmental performance has already amounted to some $300 million with another $150 million of investment planned."

Glencore's huge coal operation in Colombia, Prodeco, was fined a total of nearly $700,000 in 2009 for several environmental violations, including waste disposal without a permit and producing coal without an environmental management plan. Xstrata had to pay the fines during its temporary ownership in 2009, but said the violations occurred before it took over. Prodeco said the violations themselves took place years earlier, before it acquired and ran the network of mines. Xstrata, like many major mining groups, has experience in meeting demands for tough green standards and says it put in place an environmental management system at Prodeco before handing the mines back to Glencore in early 2010.

In Ecuador, the current government has tried to reduce the role played by middle men such as Glencore with state oil company Petroecuador, says Fernando Villavicencio, a Quito-based oil sector analyst. "Glencore has not been transparent in its business in Ecuador," Villavicencio said. The company "had been a favorite of almost all the democratic governments of Ecuador. It won almost all the contracts it competed for. They signed contracts with apparently low differentials, only to renegotiate the contracts in the middle of their terms, arguing that their costs had risen. Petroecuador usually went along with it."

Tenders such as those in Ecuador are public and subject to extensions and negotiations which are expressly written into contracts, according to Glencore.

WHO WON'T BUY?

To ready it for public life, Glencore is preparing a sustainability report to bring it into line with mining majors and using Finsbury, a public relations firm whose clients include Royal Dutch Shell and Rio Tinto, for strategic advice. Former Shell spokesman Simon Buerk has been taken on to reinforce in-house communications.

But no matter what Glencore does, some investors will steer clear.

Mike Fox, head of UK equities at Co-Operative Asset Management and the manager of two sustainable funds, says ethical investing can embrace the natural resources sector — his funds have stakes in BG Group, the natural gas producer, and Lonmin, whose platinum is used in catalytic converters – but that it would be difficult to hold shares in many oil and mining companies: "Sustainable investors will always have an issue with the very fundamental nature of these businesses," he says.

Glencore's size alone, though, would mean scores of pension funds that track the FTSE index buy the stock. It would also pick up automatic demand from tracker funds that mimic the index or the wider FTSE All-Share. A Swiss banker with knowledge of the plans puts it simply: "All the funds will have to participate."

Glencore's arrival in the FTSE would intensify the London exchange's shift into natural resource firms. Fox says the increasing domination by a single sector is a "big headache" for smaller British investors who want a diversified portfolio. "It concerns me as much from a financial perspective as a moral perspective," he says. "Customers will not expect that when they invest in a mainstream UK growth fund that a third of their money will end up in commodities."

While commodities remain hot, though, that's unlikely to change. As Glencore ponders a float, Katanga Mining is reaping the benefit of the surging markets and its wealthy, powerful owner. After losing $108 million in 2009, it posted an annual profit of $265 million in 2010.

(Additional reporting by Kylie MacLellan and Karen Norton in London, Jason Rhodes and Martin de Sa'Pinto in Zurich, David Sheppard and Joe Giannone in New York, Santiago Silva in Quito and Chris Mfula in Lusaka; Editing by Sara Ledwith and Simon Robinson)

Fri, Feb 25 2011
By Eric Onstad, Laura MacInnis and Quentin Webb

http://www.infiniteunknown.net/2011/02/ ... -heard-of/

Source: Reuters