Saturday, April 24, 2010
Two main types of crude oil products traded in the marketplace are based on location and grade. The one we normally trade in North America is West Texas Intermediate, the type of oil entering the United States through the Gulf of Mexico. Brent crude oil is the product located in the North Sea between Scotland and Norway, is essentially the benchmark for the European market.
WTI has slightly lower sulfur content and is therefore easier to refine to meet emissions requirements in place in most Western countries. Therefore, it demands a higher price. The West Texas Intermediate crude has an average historical premium of $1.40 over Brent. However we often see the prices go out of alignment and this often has to do with location and transportation bottlenecks. If crude oil is subject to a shortage in one region and there is an excess supply in another, oil will eventually be redirected, depending on the shipping industry’s capacity to move it around. This redistribution can take a few weeks or months, but over the medium term the market naturally rebalance. Oil tankers are basically conducting arbitrage as they move their oil around the world. In the meantime in the short term market prices can get out of line. (more)
"They will all bankrupt us and expropriate us, but it may not happen tomorrow. They'll give us something to play with, until the whole system breaks down...they'll just print money and print more money," he said on CNBC Thursday."What I object to the current government intervention in so-called 'solving the crisis', (is that) they haven't solved anything. They've just postponed it." (more)
The Securities and Exchange Commission (SEC) knows that High-Frequency Trading (HFT) manipulates the market and bilks investors out of tens of billions of dollars every year. But SEC chairman Mary Schapiro refuses to step in and take action. Instead, she's concocted an elaborate "information gathering" scheme, that does nothing to address the main problem. Schapiro's plan--to track large blocks of trades by large institutional investors-- is an attempt to placate congress while the big Wall Street HFT traders to continue to rake in obscene profits. It achieves nothing, except provide the cover Schapiro needs to avoid doing her job.
High-frequency trading (HFT) is algorithmic-computer trading that finds "statistical patterns and pricing anomalies" by scanning the various stock exchanges. It's high-speed robo-trading that oftentimes executes orders without human intervention. But don't be confused by all the glitzy "state-of-the-art" hype. HFT is not a way of "allocating capital more efficiently", but of ripping people off in broad daylight. (more)
“It is clear that the Greek situation is a very serious one,” said Dominique Strauss-Kahn, head of the International Monetary Fund. “There is no silver bullet to solve it in an easy manner.”
The derivatives market is currently at around $600 trillion or so (in gross notional value).
In contrast, the size of the worldwide bond market (total debt outstanding) as of 2009 was an estimated $82.2 trillion.
And the CIA Fact Book puts the world economy at $58.07 trillion in 2009 (at official exchange rates).
Interest rate derivatives, in turn, are by far the most popular type of derivative. (more)