We all played monopoly, we all played a number of board games where we were taught that there is a balance, a level of fairness about. The game Hotel lets us build a hotel, get a permit, get clearances and as the players get to our hotel, it will cost them, there is a similarity to monopoly, but Hotel plays a lot faster. We all agree that there should be balance in all this. Now let’s take you back 15 years ago, suddenly we are forced to pay an additional fee to be allowed on an airplane. The issue was that fuel had suddenly doubled in price. Fuel is the strongest and clearest view towards greed and exploitation. Forced in cars we are pushed towards spending more and more on fuel. The entire virus situation has changed the position of the seesaw, now there is another matter and the traders who have filled their pockets for decades are now in another stage. So when we are told “US Senator Ted Cruz told the Saudis to ‘turn the tankers the hell around’ on wednesday” we get the first indication on the support that politicians give the oil barons in the US. And as we are told “traders have scrambled to get out of the contract to avoid taking delivery of barrels because of a lack of storage”, it is another example of short sighted spreadsheet thinking, oris it? I will accept that the entire Coronavirus situation is totally unforseen, yet in all this, the speculators and traders are seemingly getting support on both sides of the seesaw,and that is not right. It is as I personally see it, just another version of ‘too big too fail’, and the approach that banks used before, now also applies to traders. They might make a statement on ‘stopping Saudi Shipments’, yet the opposite also remains true, if the Saudi government decides to deliver merely 80%-90% of the normal shipments for the next two years, the impact will be disastrous, fuel prices will go beyond insane and the US government only has its own shortsighted thinking to thank in that case. So as Ted Cruz ‘hides’ behind “this is SEVEN TIMES the typical monthly flow”, I merely ponder the question, what did the original contracts say? We heard last year that the Saudi’s were ‘told’ to increase production. Perhaps the Saudi government, or an official at Aramco might be kind enough to put those contracts on the internet for all of us to observe. Is it not interesting that oil ha to be ordered? So where is that purchase order? I reckon that Aramco could optionally store some of that oil in Rotterdam, the petrochemical plants there have lots of storage (I do not know how filled they are), the Americans would have to pay as they refused the ordered delivery, so the ships would have to go via an American harbour towards Rotterdam with alternative routes to Hamburg, in the end these places would end up with free oil, America has to pay for its contracted purchase of oil.
And I get it, no one saw the Corona issue explode the way it did, but that is the nature of the game, win big, lose big, but too many people won’t allow for the lose big and to some degree there are situations that can be adjusted for, but the need for 2 million barrels of oil per day, now in a nation where there is a lockdown, and not just in the US, all over the world, things will have to give in, yet what the media reports a whole range of wrong actions are being taken. So as we see in the Guardian ‘Trump considers block on crude oil imports to prop up US markets’, so that might be the short term, but consider that the Middle East decides due to these actions to limit export to the US to 80% of nominal, or what was initially agreed on. On one side, the Middle East takes a hit, on the other side if that limit applies, by the end of the year, heating and car fuel will go through the roof, how will that come across? And when it comes to ‘exploitation’, consider FXCM.com “Discover Potential opportunities and Trade your Opinion 24/5. Fast Execution and low Spreads. Trade Oil, Forex, indices and more” yes these traders had all kinds of options, but now, they need to get out, they do not want to pay the ferryman. I accept that, because the entire Corona issue could not be predicted, not to this degree, but how often do we get to hear, ‘there is one winner and one loser’ and this time around Wall Street (to name but a financial dimension), gets an invoice it never saw coming. Not just Wall Street, the financial districts on a global scale are getting a pummeling it has never had before. Is it just? That is a moot question, it is not about justice, there is no just, this is about the contract of oil delivery, they have pushed in the past again and again and the short story is, where are the contracts that the US has with Saudi Arabia? Last year they wanted it cheap, they wanted more and they demanded it their way. Now they have to pay.
Justice is not part of the deal, it never is when Wall Street potentates are involved. So why is it important? The issue is not merely the oil, there are all kinds of long term impacts on goods and manufactured items that will impact our lives, yet the oil traders demand their full margin of profit, even if nature banks against them.
As I see it, and under the present situations (as far as the information is known to me) the entire response from Ted Cruz was stupid, plain and simple. He turned to emotion whilst this was about a contract, is there a contract, is it valid? None of the media reports on this. The fact that a boat representing $50 million in goods leaves a port implies that this a contract or a purchase is attached to it, if not, Ted Cruz still does not have a leg to stand on, because he never made mention of that, politicians hiding behind emotions and outbursts tend to have lost the higher ground and it shows here.
And the media is (as I personally see it) in on it, none of them are asking about the contracts, no one is looking at the oil contracts whether Saudi Arabia is having an alleged hostile act, and in this, the turnabout is harsh, when Saudi Arabia limits delivery for years, the US will have a massive industrial problem. Is that not an interesting view? In the entire oil contracts, I saw nothing on the BBC, the Guardian, and a few other papers too, there is no show of the contracts and perhaps you remember that no one ships $50 million in goods unless there is a contract or a purchase order. It is not about the dumping, it is about the paperwork around it and no one is asking.As I was watching an interview with Ted Cruz, I see that he is in a bad place, his state (Texas) is the oil producing heart of America, they do not like the situation and I agree that he must do what is best for his constituents, yet in all this someone signed a contract with Saudi Arabia (a fair assumption) and no one is asking for that document, not even the media, is that not surreal?
If we are going to hide behind emotion with the hope that the invoice flys by, we ned to realise that this will hit on the flip side, and the consequence of 80% delivery after Corona is equally dangerous, but if this is a game, you should accept a lack of foresight attached to this, in business there are purchase orders and sales contracts, Especially in oil where prices can go through the roof, in this case the oil traders will take a hit unlike they have ever had, it comes with those 7 figure bonuses.
At some point regression to the middle also indicates that profit falls can fall to zero. Those not seeing that were standing on a bear trap hoping no bear would come by as they were unable to move and optionally unable to flee the environment.