Now we know how rigged oil futures are

The decision to tap the Strategic Petroleum Reserve will shake out speculators and help consumers.

By Jim Cramer Jun 24, 2011 9:12AM

the streetthe streetAll people did Thursday when I asked them about this Strategic Petroleum Reserve gambit was tell me how silly it was, how it won't work and how it is just a sign of desperation.

 

To which I say that we have thrown trillions of dollars and euros all over the place to get this world's economy moving again, and it is failing in large part because the price of oil is too high. Is it really such a nutty idea to hit the market with enough oil that the nonconsumers who are hoarding it get blown out and the price falls? Is it really so crazy that we should criticize it when it's already working?

 

Sometimes people have to recognize the beauty of this. If all it takes to destroy the price is the release of a couple of days' supply of oil from our reserve to the marketplace, can't you see how phony the whole thing is? The critics would let us be hostage to that situation instead of having this artificial and easily manipulated market be brought to heel.

Yes, it is true, I think raising the margin rates to levels where silver is -- requiring more upfront capital to trade futures -- might have done the trick. I am not thrilled that they went this way.

 

However, when I hear, "Oh, but it is so little oil, it won't even matter," that is spoken by someone who is either long or doesn't have a computer screen, because oil went right through where "they" said it wouldn't go.

 

In a chart-driven market, where people know that if they keep oil off the market it goes higher, the governments tipped the balance against the speculators and for the people.

 

Heck, to me, that's a darned good bargain.

 

Jim Cramer is a co-founder and the chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Follow Cramer's trades for his Charitable Trust.

 

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196Comments
Jun 24, 2011 3:01PM
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Oil markets rigged?  I'm 60 and I've lived to see the whole damn Country become a rig job.

The Washington/Wall Street axis is plain and simply a criminal enterprise.

Sadly, It wasn't always like this. I remember honorable men, diverse men like Hubert Humphrey and Barry Goldwater who DID love their Country and DID care about the American people.

It's not hard for me because I'm closer to the end than the beginning. But what about you younger people and your children?  Where do you go from here?

Jun 24, 2011 10:30AM
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Oil markets rigged?  Not based on supply and demand?  Oil prices driven by speculators?  I'm shocked.  Now tell us something we didn't know.
Jun 24, 2011 10:32AM
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I actually like Cramer - in print.

 

He's absolutely right with this. They had to shake the roaches out of the microwave.

 

I'm an energy investor, but the speculation is no good for anyone but those out for the quick buck no matter what it hurts.

 

I suspect that they would not even have to actually release much oil. They only have to make the announcement - game's over.

 

Unfortunately, unless threats to oil from the instability in the Middle East ease, we are still ripe for speculation. This gaming of the system needs to be fixed for the sake of all.

Jun 24, 2011 3:04PM
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The release was to drop oil prices. If we really want lower oil, increase margin requirements or require speculators take possession of the oil they buy. Watch oil drop like a rock. The only ones who say this won’t work are the speculators. These leaches are stealing yours and my money while the government sits and does nothing. That’s because we have the best government that money can buy.

Jun 24, 2011 11:44AM
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Is it not strange that the price of gas immediately jumps when crude oil goes up even when it takes several weeks for it to reach the market. However, when crude oil goes down its a slow delay for it to reach the consumer. This situatuon begs for HONEST regulation. I bought a scooter for all my short trip running around -Im tired of getting ripped off. We need another Teddy Rosevelt not bought and paid for crooks. 
Jun 24, 2011 10:58AM
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After seeig the damage they did, I think ALL oil speculators ought to be taken out of their plush offices, and be forced to work in the hot sun, and pay those high gas prices, like everybody else does...AND if they complain..shoot 'em.
Jun 24, 2011 12:36PM
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Take down all the manipulators, goldman sachs,insider traders and anyone who games the system. Many small investors have quit the market and will not come back unless the crooks have left. Cramer is right.

Jun 24, 2011 11:57AM
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Speculation on the basics we have to have day to day, to live, should never have been allowed to start with. It is open season on the common man by the rich. The U.S. Global wealth report said the investment capital of the richest Americans increased 10% last year to 38.2 trillion dollars.  Here in the NW we are told now George Sores  has bought the big inland and exporting grain elevators. Control of a major world food source-wheat.  Control food=control the people.

Jun 24, 2011 2:25PM
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I have a small amount invested in an oil stock money market which tanked in 2008.  Although gas and oil keep rising, this fund never increases.  Speculators keep everyone else from saving a penny or making a dime.  It's wrong.  If the government really wanted to do something, they would do this maneuver again and again, and then they would prevent these trades completely.  They are choking America and turning the Northeast and Midwest into a place where seniors are going to freeze to death.  people are blaming the mideast when the situation is more likely caused to Wall Street and a bunch of greedy investors.  It has to stop.

Jun 24, 2011 12:06PM
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Anybody just NOW realizing this is what's going on is part of the problem.  You don't have to be armpit deep into commodities to know it's rigged.  When I was with EXXON we travelled First Class.  In every way.  And we knew what other oil companies were doing.  We wasted TONS of money but fought like tigers over 1/4 cent a quart on retailers pricing.  And THAT was 20 years ago. 
Jun 24, 2011 11:54AM
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He may be a nut...but there is some truth to this....its a big boy club that is  killing the middle class and the economy...
Jun 24, 2011 10:26AM
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Smile All the critics were those that got burned (ie. traders) and those (Repubs) that didn't think about it first.  It's a rally good idea and they should next raise tha margin requirements to equal the 200 ma of the price of oil or eliminate oil future trading all together.  I'm sure IEA and OPEC could have fun with that idea.  Anytime there's marginal excess supply future traders can jack the price unrealistically.  Let's replace oil futures with marijuana futures.
Jun 24, 2011 4:28PM
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IT DOES NOT TAKE A GENIUS TO FIGURE THAT FACT OUT

REMEMBER THE DAYS WHEN WE WERE DUPED INTO BLAMING THE ARABS AND OPEC

IT IS OUR OWN THAT ARE SCREWING US AND HAVE ALWAYS BEEN - GOOD OLD WALL STREET WHERE THEY WOULD SELL THEIR OWN MOTHERS INTO PROSTITUTION FOR A PENNY MORE PROFITS
Jun 24, 2011 12:26PM
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I would like to see the anti-trust laws enforced.  We have too much fraud, corruption and manipulation on Wall St.  The middle class is disappearing.  We are over-taxed, losing jobs due to NAFTA and other predatory free trade deals.  Some companies are said to be "too big to fail".  Yet we are seeing corrupted big banks, big media companies and other mega businesses fail because they took on too much debt and became too bloated in management to take care of business at the street level.  We need to get rid of dumb regulations.  But use sound constitutional regs to keep competition in place to deliver more goods and services at lower prices.  I would break up the big oil companies and put restrictions on speculators to make things work better.
Jun 24, 2011 12:08PM
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One point about this story, it is the "Strategic Oil Reserve" not the "Emergency Oil Reserve" as some would have people believe (Joey Scarborough) and it was used strategically as was intended. The idea that it was only to be tapped in the case of war or horrific tragedy is bunk and was never the case. It was set up after the oil embargo of the 70's for just this purpose (and other) to stop OPEC or anyone else from holding the American economy hostage. Now raise the margin limits and be done with this chapter of greed!

Jun 24, 2011 11:16AM
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Big oil is killing our economy.. They stop our progress toward electric vehicles, by buying electric battery patents, and not letting anyone build them!! (Chevron NI-MH)

This should be illegal-... it kills any progress toward eco vehicles, and keeps "Big Oil" in charge.  I own a 1981 "Plug in electric vehicle" Factory built Jet electrica .

It is still working flawlessly after 30 years!!!!  It still has a 35 mile range and costs only $1.50 to charge!

If the good batteries were available (chevrons Ni-Mh) this car would have 100 miles of range and still be very realible.

Thanks for nothing Big oil!   I say go electric and Scr_w Big oil , just like they have done to US.

 

Jun 24, 2011 2:57PM
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One need look no further than Morgan Stanley to find the largest manipulator of the oil market. They were the driving force behind the last spike and still hold so much oil in storage (at a price still not at break even) that we can not store much recently pumped oil. Until these brokerage houses/banks are reigned in (Glass Steagle) the markets and the financial system will remain in chaos.
Jun 24, 2011 5:55PM
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Wasn't one of the big points Obama made when running for office was "I will get rid of oil speculation"?
Jun 24, 2011 11:10AM
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I hate taxation like anyone else, but taxes on gas have nothing to do with the energy prices. Speculation and investor games is the problem.
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