Did Wall Street Banks Create the Oil Crash?

[eridani]

http://wallstreetonparade.com/2016/01/did-wall-street-banks-create-the-oil-crash/

From June 2008 to the depth of the Wall Street financial crash in early 2009, U.S. domestic crude oil lost 70 percent of its value, falling from over $140 to the low $40s. But then a strange thing happened. Despite weak global economic growth, oil went back to over $100 by 2011 and traded between the $80s and a little over $100 until June 2014. Since then, it has plunged by 72 percent – a bigger crash than when Wall Street was collapsing.

The chart of crude oil has the distinct feel of a pump and dump scheme, a technique that Wall Street has turned into an art form in the past. Think limited partnerships priced at par on client statements as they disintegrated in price in the real world; rigged research leading to the dot.com bust and a $4 trillion stock wipeout; and the securitization of AAA-rated toxic waste creating the subprime mortgage meltdown that cratered the U.S. housing market along with century-old firms on Wall Street.

Pretty much everything that’s done on Wall Street is some variation of pump and dump. Here’s why we’re particularly suspicious of the oil price action.

Americans know far too little about what was actually happening on Wall Street leading up to the crash of 2008. The Financial Crisis Inquiry Commission released its detailed final report in January 2011. But by July 2013, Senator Sherrod Brown, Chair of the Senate Banking Subcommittee on Financial Institutions and Consumer Protection had learned that Wall Street banks had amassed unprecedented amounts of physical crude oil, metals and other commodity assets in the period leading up to the crash. This came as a complete shock to Congress despite endless hearings that had been held on the crash.

[Ford_Prefect]

1. While the manipulations of commodities and financials are relevant this doesn't address the Saudi

efforts to undermine international fracking sources and the Iranian re-entry to the oil market.

[Warren Stupidity]

2. The Iranians entered long after the Saud thugs decided to open the spigot.

They are a factor but not the driving factor, which is quite obviously that the Sauds decided that they were going to wreck the investment in expensive extraction oil.

[Amishman]

3. as other said, its the Saudis not Wall Street

Wall Street does not want this at all, they have billions in fracking oil company debt on the books which is threatening to turn into a pumpkin and ruin their bonuses.

The Saudis want to bankrupt a few competitors to regain their role as kingmaker in the oil world.

[metalbot]

4. It's a strategy that is doomed to fail

Fracking is relatively cheap to turn on/off. They can bankrupt the companies, but when the companies go bankrupt, their mineral rights are just sold as assets (at potentially low prices) to people who will sit on them until it's profitable to drill again.

[GreatGazoo]

5. I don't see these authors (husband and wife?) making a case for how Wall St would profit from this.

Morgan Stanley leases storage and buys shiploads of oil to fill them, 58 million barrels worth when oil was $85 to $110 per barrel. Then, according to these authors, MS crashes the price of oil, losing $58 million dollars for every dollar that a barrel of oil drops. So if they were price averaged at $90 and oil drops to $40, the loss is $2.9 billion.

Large players CAN manipulate commodity prices but the traditional way is to squeeze short sellers or create shortages by taking enough refineries offline to create a temporary shortage.

The US Strategic reserves hold over 710 million barrels alone. The US is pumping out another 14 million barrels every day, the Saudis 12 million, Russia 11 million, etc. Morgan Stanley holding 58 mil barrels is basically a two day supply and not enough to manipulate anything.