CME fines JPMorgan for wash trades in oil, gasoline [Chicago Tribune]

JPMorgan Chase & Co. executed wash trades on 10 separate occasions in U.S. crude oil and gasoline futures in the first half of last year, the operator of theNew York Mercantile Exchange (NYMEX) said in a disciplinary notice on Friday.

 

JPM lawsuit
Wash trades involve having the same dealer on opposite sides of the same trade, essentially selling to yourself, and are banned under exchange rules.

CME Group, which operates NYMEX, ordered JPMorgan to pay a fine of $30,000. One of the JPMorgan traders, Ebele Emelumadu, was fined a further $10,000.

The $30,000 fine, equivalent to just over one millionth of JPMorgan’s total employee compensation last year of $29 billion, comes as the bank’s trading practices are already under the spotlight after the now-infamous ‘London Whale’ racked up huge losses for the firm.

Excessive speculation and energy price manipulation are also hot political topics during this U.S. election year. The U.S. Commodity Futures Trading Commission (CFTC) is bringing in tighter position limits to try and curb the impact of individual firms on oil and other commodity prices.

“On 10 separate occasions between January 1, 2011, and June 30, 2011, in an effort to manage position limits, traders employed by JPM executed block trades between separate legal entities with the same beneficial owner in WTI or Gasoline,” the notice said, referring to West Texas Intermediate (WTI), the main U.S. crude oil futures contract.

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Jim Rogers Interview about Hard Assets, Oil, and Currency Diversification

Saudi Arabia And China Team Up To Build A Gigantic New Oil Refinery – Is This The Beginning Of The End For The Petrodollar?

From The Economic Collapse

Saudi Arabia And China Team Up To Build A Gigantic New Oil Refinery - Is This The Beginning Of The End For The Petrodollar?

The largest oil exporter in the Middle East has teamed up with the second largest consumer of oil in the world (China) to build a gigantic new oil refinery and the mainstream media in the United States has barely even noticed it.  This mammoth new refinery is scheduled to be fully operational in the Red Sea port city of Yanbu by 2014.  Over the past several years, China has sought to aggressively expand trade with Saudi Arabia, and China now actually imports more oil from Saudi Arabia than the United States does.  In February, China imported1.39 million barrels of oil per day from Saudi Arabia.  That was 39 percent higher than last February.  So why is this important?  Well, back in 1973 the United States and Saudi Arabia agreed that all oil sold by Saudi Arabia would be denominated in U.S. dollars.  This petrodollar system was adopted by almost the entire world and it has had great benefits for the U.S. economy.  But if China becomes Saudi Arabia’s most important trading partner, then why should Saudi Arabia continue to only sell oil in U.S. dollars?  And if the petrodollar system collapses, what is that going to mean for the U.S. economy?

Those are very important questions, and they will be addressed later on in this article.  First of all, let’s take a closer look at the agreement reached between Saudi Arabia and China recently.

The following is how the deal was described in a recent China Daily article….

In what Riyadh calls “the largest expansion by any oil company in the world”, Sinopec’s deal on Saturday with Saudi oil giant Aramco will allow a major oil refinery to become operational in the Red Sea port of Yanbu by 2014.

The $8.5 billion joint venture, which covers an area of about 5.2 million square meters, is already under construction. It will process 400,000 barrels of heavy crude oil per day. Aramco will hold a 62.5 percent stake in the plant while Sinopec will own the remaining 37.5 percent.

At a time when the U.S. is actually losing refining capacity, this is a stunning development.

Yet the U.S. press has been largely silent about this.

Very curious.

But China is not just doing deals with Saudi Arabia.  China has also been striking deals with several other important oil producing nations.  The following comes from a recent article by Gregg Laskoski….

China’s investment in oil infrastructure and refining capacity is unparalleled. And more importantly, it executes a consistent strategy of developing world-class refining facilities in partnership with OPEC suppliers. Such relationships mean economic leverage that could soon subordinate U.S. relations with the same countries.

Egypt is building its largest refinery ever with investment from China.

Shortly after the partnership with Egypt was announced, China signed a $23 billion agreement with Nigeria to construct three gasoline refineries and a fuel complex in Nigeria.

Essentially, China is running circles around the United States when it comes to locking up strategic oil supplies worldwide.

And all of these developments could have tremendous implications for the future of the petrodollar system.

If you are not familiar with the petrodollar system, it really is not that complicated.  Basically, almost all of the oil in the world is traded in U.S. dollars.  The origin of the petrodollar system was detailed in a recent article by Jerry Robinson….

In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.

By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection. 

This petrodollar system, or more simply known as an “oil for dollars” system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.

Once you understand the petrodollar system, it becomes much easier to understand why our politicians treat Saudi leaders with kid gloves.  The U.S. government does not want to see anything happen that would jeopardize the status quo.

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Iran developments

Oman warns on military confrontation with Iran

March 18, 2012 04:29 PMBy Martina Fuchs

MUSCAT: Oman, located strategically on the opposite side of the Strait of Hormuz from Iran, said the risk of military conflict between Tehran and the West was rising but there was still plenty of opportunity to negotiate peace.

Iran has repeatedly denied charges by Western nations it is developing the capability to build nuclear weapons, but the United States and European Union have recently imposed tougher sanctions in an effort to convince Tehran to curb its nuclear program.

“It is in the interest of both sides to come to the middle road,” Yousuf bin Alawi bin Abdullah, the sultanate’s minister responsible for foreign affairs, told Reuters at the Foreign Ministry in Muscat.

“We can see that the threat of an unfortunate flash of military confrontation is more possible rather than it is remote.”

Oman on several occasions has acted as an intermediary between Iran and the West.

Last year, Oman’s Sultan Qaboos bin Said facilitated the release of two U.S. hikers held by Tehran for spying, and three French aid workers held hostage by Yemeni tribesmen were freed in November after Oman negotiated their release.

Speculation has grown in recent months that Israel, with or without U.S. support, may launch some form of preemptive military strike against Iranian nuclear installations, which the Jewish state sees as a threat to its existence.

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‘Mossad, CIA agree Iran has yet to decide to build nuclear weapon’

New York Times report quotes senior American officials who believe there is little disagreement between Israeli and U.S. intelligence over Iran’s nuclear program, despite calls for a strike by Israeli officials.

Israel’s intelligence services agree with American intelligence assessments that there is not enough proof to determine whether Iran is building a nuclear bomb, according to a report published Sunday in the New York Times.

The newspaper said that senior American officials believe there is little disagreement between the Mossad and U.S. intelligence agencies over Iran’s nuclear program, despite the fact that Israeli political leaders have been pushing for quick action to block Iran from becoming what they describe as an existential threat.

The report further quoted one former senior American intelligence official who states that the Mossad “does not disagree with the U.S. on the weapons program,” adding that there is “not a lot of dispute between the U.S. and Israeli intelligence communities on the facts.”

According to the New York Times, the extent of the evidence the spy agencies have collected is unclear since most of their findings are classified. However, intelligence officials say they have been throwing everything they have at the Iranian program.

The United States and Israel share intelligence on Iran, American officials said. For its spying efforts, Israel relies in part on an Iranian exile group that is labeled a terrorist organization by the United States, the Mujahedeen Khalq, or M.E.K., which is based in Iraq, says the report.

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Iraq approves Hormuz oil exports contingency plan [Reuters]

Sun Mar 18, 2012 9:57am EDT By Ahmed Rasheed

BAGHDAD, March 18 (Reuters) – Iraq has approved a plan to expand its oil export routes by adding capacity from its northern fields and building a pipeline to ship oil from southern fields to Ceyhan in Turkey, a government spokesman said. The contingency plan was set by the government’s energy and economic committee to deal with any potential crisis should Iran close the Strait of Hormuz, which would halt about 80 percent of Iraq’s oil exports. Iran has threatened to close the Strait of Hormuz, used for a third of the world’s seaborne oil trade, if Western moves to ban Iranian crude exports crippled its energy sector. “Short and mid-term plans will be through boosting crude pumping and upgrading export capacity via Ceyhan port in Turkey. Also to increase the number of trucks that are shipping crude,” government spokesman Ali al-Dabbagh said on Sunday. Iraq exported 2.014 million barrels per day in February, including 1.711 million bpd from its southern oil hub of Basra and via exports terminal in the Gulf, and 375,000 bpd from its northern fields around Kirkuk to Ceyhan. Dabbagh said plans approved by the government were a short-term measure based on recommendations from the oil ministry, and said stepping up efforts to convince Iran and the United States of the need to avoid closing the Strait of Hormuz. “The oil ministry suggested accelerating work to complete building the north strategic pipeline and connect it to the Kirkuk-Ceyhan pipeline to export oil from Basra via Ceyhan port,” Dabbagh said. Iraq has also been moving ahead with building a 680 kilometre pipeline able to transport 1 million bpd of crude from southern oilfields around Basra to a main pumping station in Haditha in the west, an oil ministry spokesman said. “We managed to complete constructing 200 km of the pipeline with plans to finish all work in 2013. We will have the flexibility of shipping Basra crude to various destinations, including towards Ceyhan port,” Asim Jihad said. The Kirkuk-Ceyhan pipeline has come under sabotage attacks many times since the 2003 U.S.-led invasion, and frequently breaks down due to technical faults.

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Iran, USA reinforce Hormuz Strait defence with minehunters [AGI]

(AGI) Washington- The US navy has strengthened its flotilla in the Persian Gulf’s Strait of Hormuz with four more minehunters.
Alongside the fifth fleet in Bahrain, the Pentagon has readied the vessels and four CH-53 Sea Stallion with mine-detecting equipment for departure. The aim, admiral Jonathan W. Greenert explained, is to reinforce security in the narrow Strait of Hormuz between Iran and Oman, through which 20% of the world’s oil passes; a strategic point which Iran has repeatedly threatened to blockade in case of an attack on its nuclear facilities. In January Iran’s chief military official warned the U.S. to not send any more aircraft carriers to the Persian Gulf after the USS John C. Stennis traversed Hormuz.

Navy says it will add ships to Persian Gulf amid Iran threats [World Now]

by Tony Perry

REPORTING FROM SAN DIEGO — The U.S. Navy is upgrading its defensive and offensive capabilities in the Persian Gulf to counter threats from Iran to seize the Strait of Hormuz and block the flow of oil, the chief of naval operations said Friday.

Adm. Jonathan W. Greenert told reporters in Washington that the Navy will add four more mine-sweeping ships and four more CH-53 Sea Stallion helicopters with mine-detection capability. The Navy is also sending more underwater unmanned mine-neutralization units to the region.

Greenert said he plans to assign more patrol craft to the gulf, possibly armed with Mark 38 Gatling guns. The same kind of guns might be placed on ships that provide protection for U.S. aircraft carriers or perhaps on the carriers themselves.

U.S. ships have excellent long-range defenses but could use weapons for closer combat, Greenert said.

“It’s like being in an alley with a rifle and maybe what you need is a sawed-off shotgun,” he said.

The Iranians have boasted that they could “swarm” large U.S. ships with their smaller, fast-moving craft. They have also reportedly been laying mines along their coastline.

The narrow Strait of Hormuz is a key transit way for oil tankers. Any closure of the strait could send oil prices skyrocketing, officials say.

In January, the chief of the Iranian army warned the U.S. not to send another ship to the Persian Gulf after the aircraft carrier John C. Stennis departed. Another carrier, the Abraham Lincoln, entered the gulf weeks later without incident.

Greenert told reporters at the Defense Writers Group that he was aboard the John C. Stennis as it left the gulf through the Strait of Hormuz.

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Obama and Cameron mull releasing oil reserves, as Falklands oil row hots up [The Guardian]

The politics of oil took centre stage on Thursday as Britain quarrelled with Argentina over exploration off the Falkland Islands and opened talks with the US on joint action to try to subdue crude prices.

UK officials confirmed that David Cameron and Barack Obama had discussed such a presidential plan to release oil stocks at an Oval Office meeting. Speculation that the US and UK were preparing to co-operate in this way helped send Brent crude down by around $1 a barrel to $124, still very high by historic standards, although short of the record $148 in mid-2008.

Both leaders are under political pressure from motorists and consumers over soaring fuel costs.

Speaking in New York on Thursday, Cameron said: “We are all facing the problem of higher oil prices and that translates into the cost of filling up the family car, which is very high here in the US but frankly even higher in the UK.

“I want to try to help British families, just as Barack Obama wants to help American families. We didn’t reach a decision yesterday about oil reserves but we discussed the issue and I think it is important that we do what we can to try to help families who are trying to make their family budgets add up.”

Obama is particularly worried that high prices could derail his country’s fragile economic recovery in a presidential election year.

Both of them are also aware that the Middle East – still the world’s main oil producing area – remains highly volatile, a situation which could worsen if Israel attacks Iran, as some fear.

One British source said of a potential reserves plan: “President Obama is getting a lot of grief over the high price of oil.”

Britain also responded on Thursday to a threat of legal action by Argentina against companies involved in energy exploration around the Falklands.

Argentina says Britain is flouting UN resolutions that call for talks and prohibit any unilateral action as long as the sovereignty dispute persists. Foreign minister Hector Timerman said offshore oil exploration amounts to a unilateral move.

At a news conference in Buenos Aires, the minister called the exploration and drilling activities illegal. He said Argentina would bring civil and criminal charges against the companies involved.

“With these actions we assume the responsibility of defending Argentina’s natural resources,” he said. “The South Atlantic’s oil and gas are property of the Argentine people.”

A UK Foreign Office spokesman said: “Hydrocarbon exploration is a legitimate commercial venture and the British government supports the rights of the Falkland islanders to develop their hydrocarbons sector.”

“This right is an integral part of the right of self-determination, which is expressly contained in the International Covenant on Civil and Political Rights,” he added, referring to a United Nations’ treaty.

He said there could be no negotiations on the sovereignty of the Falkland Islands unless the 3,000 islanders wanted them.

Several companies have drilled in waters off the islands. British explorer Rockhopper has been seeking a partner to invest in the $2bn (£1.3bn) Sea Lion project. Borders & Southern and Falkland Oil & Gas are set to drill wells south of the islands this year.

An industry source in London said legal action against companies involved in Falklands oil exploration “will have no impact on Rockhopper’s operations as they look to develop the Sea Lion project”.

Borders & Southern declined to comment.

As to the US plan, Britain is open to the idea of attempting to subdue the oil price by releasing reserves, if only because it is a way of showing a desire to help. But officials are sceptical about whether the UK and US, as major oil consumers rather than producers, can have a long-term impact on the price.

One source said: “To bring down the price of oil you need to increase the supply, which at the end of the day is down to the Opec producing countries. Saudi Arabia has already increased production.

“You also need a fall in demand. But that is not going to happen because there has been a structural change in demand – that is, 8% annual growth in China.”

Continue reading on The Guardian

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