Cornering the Petroleum Market

**RayH** · December 23rd, 2008, 02:02 PM

How much does it cost to drive up the cost of oil? Now that these hedge funds are caught with their shorts down, the prices of oil have fallen. It only takes $2 billion to corner the world output of petroleum (100 million barrels) at $200 per. A few hedge funds working in concert can easily drive the prices up.

**Theophylact** · December 23rd, 2008, 02:42 PM

RayH, I don't understand your math. Even assuming a typo (oil has to be at $20/bbl for $2 billion to buy 100 million barrels), that's still only a little more than one day's world production (82.5 million bbl/day in 2005).

**RayH** · December 23rd, 2008, 03:24 PM

math wrong. But how much capital does one have to outlay to cover the bet?

**cyphen** · December 23rd, 2008, 04:08 PM

Are you arguing in favor of attempting to drive the price of oil up?

**jkrohn** · December 23rd, 2008, 04:40 PM

The total open interest on Crude Oil is 1,135,489 right now. At 1000 barrels per contract you have 1,135,489,000 barrels in play for contract or options to give you a cost base.

That being said, the exchange has measures in place to stop a person or group of people from cornering the market. With that many contracts in play you would need a lot of people all cooperating perfectly to pull it off and still be within exchange rules.

**Rmcky** · December 23rd, 2008, 06:41 PM

Originally Posted by jkrohn

The total open interest on Crude Oil is 1,135,489 right now. At 1000 barrels per contract you have 1,135,489,000 barrels in play for contract or options to give you a cost base.

That being said, the exchange has measures in place to stop a person or group of people from cornering the market. With that many contracts in play you would need a lot of people all cooperating perfectly to pull it off and still be within exchange rules.

And, if you believe that, you'll believe damned near anything.

I don't trust the den of thieves on WS any further than I could pick them up and throw them. However, I do hope whoever was messing with oil prices took one hell of a hit.

**RayH** · December 23rd, 2008, 06:55 PM

Originally Posted by cyphen

Are you arguing in favor of attempting to drive the price of oil up?

No, I'm trying to make a point that those hedge funds that went belly up were probably in cahoots to drive the market up. I don't think that it was an impossibility. Once something like that is going up, who's going to bid it down?

**cyphen** · December 23rd, 2008, 07:06 PM

Okay... for a second i thought maybe you were one of those kooks who thinks that oil should be artificially expensive...

**jkrohn** · December 23rd, 2008, 10:11 PM

Oil has nothing to do with Wall Street as far as the trading of the contracts goes, and the commodity exchanges actually do take quite a bit of action against this sort of thing as it undermines their entire business model. It has been tried quite a few times with different commodities over the years.