Shadowtraders

Futures Trading -- Who Knew What?

Oil production is going higher. Oil production is going higher. A week before the OPEC Ministers met, this is what we all heard. "The most likely outcome of the meeting will be an increase. The amount of the increase is yet to be decided by OPEC ministers, all the numbers in the market now are just guesswork.: according to an OPEC delegate. So who knew what?

On the Friday before the announcement, a senior OPEC delegate from a Persian Gulf country and who is part of an OPEC advisory group, presented his findings, showing global oil demand would be increasing significantly in the second half of 2011. Therefore it was necessary to increase production. Analysts from Societe Generale SA and Morgan Stanley both agreed that OPEC would likely increase production quotas by 1.5 million barrels a day.

What happened in the Futures Market after this announcement was amazing...the price of crude oil dropped 3-4 points (300-400) ticks. It was heading well below $100/barrel for the first time in a long time based strictly on the reports.

Understand, OPEC has left its production quota at 24.845 million barrels/day since 2009. The IEA estimated crude oil output was about 26.15 million barrels / day, but demand for crude has risen since then so production quotes should go up.

What was the outcome of the meeting after all this hoolah and hype that production quotas were going up? As a result of their meeting, OPEC officals said the group had failed to reach consensus to boost output. Just like that. All the hype and nothing happened.

But what DID happen was amazing to watch. Crude Oil Futures Contracts. Four times, count them, 4 times, a group of traders bought about 6000 crude oil futures, driving the price higher and higher. 6000 contracts. Think of this, even on margin, that was roughly $6,000,000 on the line 4 times one after another forcing the price up about 150 ticks. How much profit did they make? How about $10 million, in just a couple of minutes. And that was not the only contract that went up dramatically. All told, between the S&P 500, Treasuries, Currencies, Crude Oil, and Gold, they must have made roughly $20 million in less than 5 minutes. There is insider trading and then there is complete Market Manipulation.

The question at hand is...who knew what? Surely they knew what would happen when they hyped the price of crude and then failed to agree, deferring until December. Was it a coincidence? If you believe that, I have the proverbial Brooklyn Bridge to sell you.

Who was it that didn't agree? How about Venezuela and Iran. Both countries are opposed to US foreign policies.

Their decision puts greater pressure on the Obama administration. He has already lost significant political support due to high gas prices that have created real financial pain for working class families. Increased production would have helped push oil prices down. Surely Venezuela and Iran knew this. Now the next OPEC meeting won't be until December, so there cannot be any relief any time soon.

How interesting that some group of traders was standing by with 6,000 contracts so that as soon as the news was released, they could put on their positions. Lucky wasn't it.

Just remember -- There is no such thing as insider trading. ...

Barbara Cohen, CIO, Shadowtraders, and professional day trader, specializes in teaching students how they can be trading futures with their own trading system and trading strategies. Ms. Cohen has helped hundreds of traders achieve their goals trading. Find out if trading futures is for you by attending one of Ms. Cohen's Free Webinars. Check out her Futures Trading Articles For more information, send an email to shadowsupport@shadowtraders.com or call 866-617-2037 today.

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