Opinion Editorials, August 2005, To see today's opinion articles, click here: www.aljazeerah.info
By Hassan El-Najjar
August 5, 2005
Since the death of King Fahd of Saudi Arabia, on August 1, 2005, crude oil prices stayed over $61.5 per barrel in the US New York Mercantile Exchange (NYME). This all time high oil price is politically illogical as the death of King Fahd will not lead to any instability in the political system of the largest world oil-producing country. The real explanation does not lie in politics. Rather, it is in understanding how trading in the NYSE works, as Sean Hewitt argued. Stock market Insiders may have already started selling their crude oil contracts, or may be still pushing for a higher price before doing so, as Hewitt would argue. When they sell their big contracts, prices of crude oil start to decrease and a new cycle of trading begins when prices reach their lowest level.
Sean Hewitt has been a crude oil trader in the NYME for decades. He wrote a small book about his experience and sent me a copy. The following is a summary of his experience, as he wrote it,* of how powerful people have been fortunes in crude oil trading. To protect himself from the powerful people in the know, Sean wrote that all names and events were fictional though conforming to what has been happening in the stock market.
As an example of what happens in a single trade period, Sean Hewitt explains that directly after September 11, 2001, crude oil prices declined in the US New York Mercantile Exchange (NYME). The oil prices were "supported and set on a course of a long uptrend lasting 14 months from $17/barrel to all the way up to over $40 /barrel just prior to the war in Iraq. Since the people in the know effectively started the move almost 14 months before the war, it is now obvious to me that the people in the know had made up their minds about the Iraq war back in the fall of 2001."
"When the Iraq war became a reality, the people in the know smashed the price within days as they took profits when the buying interest was the highest."
Basically, Sean Hewitt is arguing that big political decisions, like the US-UK invasion of Iraq in 2003, are market oriented, thus confirming what Paul O'Nel and Clark said. It was decided well before September 11, 2001 attacks. What's new here is that Sean Hewitt is telling us that the Iraq war was decided in relation to crude oil prices in the stock market.
Between September 11, 2001 and October 2004, a US crude oil trader started a trading account worth of $100 million. In just five trades, during this three-year period, he was able to increase the account into $3.65 billion. His 10% commission was $365 million and the rest went to the account owner.
The major argument Sean Hewitt is making is that while most people are occupied with watching the political decisions of the US government, including waging wars, they are missing the economic or financial purposes of these decisions. In his view, wars or homeland security measures are designed to influence prices of stocks, particularly crude oil prices in this case. In brief, powerful people (stock market insiders) influence plans and decisions of launching wars, which enables them to make billions of dollars in profits, within a very short time of their life.
The following is a summary of the five trades that Sean Hewitt described had happened in about three years and made the above-mentioned fortune.
The Five Oil Trades:
The first trade was buying $100 million worth of crude oil contracts in January and February 2002 (benefiting from oil price decline after September 11, 2001 attacks), when the price was $18/barrel and $22/barrel. On February 2003, he sold his oil contracts when the price reached $38/barrel, making $148 million in profits, in a twelve-month trading period.
The second trade was buying $248 million worth of crude oil contracts in March 2003, when the price was $28/barrel, as a result of selling the big contracts by the insiders. Within one week, just before the US-UK war on Iraq, he sold his oil contracts when the price reached $38/barrel again, making $225 million in profits.
The third trade was buying $473 million worth of crude oil contracts in June 2003, when the price was about $33/barrel. In July 2003, the contracts were automatically sold with a loss of $1.75 per barrel, which he set in advance as a precaution. This led to a loss of $16.5 million.
The fourth trade was buying $456 million worth of crude oil contracts in April 2004, when the price was $34/barrel. In October 2004, the contracts were automatically sold at a price of $58.50/barrel. This sale made him about $1.124 billion in profits. (Sean Hewitt here explains the $60+/barrel by the October surprise).
The fifth trade was buying $1.58 billion worth of crude oil contracts again in October 2004, when the price crashed to $28/barrel. His contracts were sold in the same week for $58/barrel, making $2.25 billion in profits. Thus, the Saudi account grew to $3.65 billion, from which he made $365 million as his 10% commission.
* Hewitt, Sean. 2004. "Crude Bedfellows: How the insiders set-up, started, and finished a bull market run in crude oil." Author House: Bloomington, Indiana, USA.
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