Saudi Authorities Panic - Ban Speculation On Riyal Devaluation Amid Banking Crisis | Zero Hedge:
Saudi Oil Minister Ali al-Naimi in Sudan on May 4. PHOTO: REUTERS
AHMED AL OMRAN
Updated May 7, 2016 10:50 a.m. ET
RIYADH—Saudi Arabia fired long-serving oil minister Ali al-Naimi on Saturday, dismissing one of the industry’s most powerful figures as the country battles with weak oil prices.
Mr. Naimi, who had been the kingdom’s oil minister since 1995, has been a loud voiceagainst lowering Saudi Arabia’s production when prices fall, a departure from its past tactics.
He will be replaced by Khalid al-Falih, chairman of state oil company Saudi Arabian Oil Co., better known as Saudi Aramco.
The royal decree, announced via state media, is part of a wider government reshuffle that includes a restructuring of the oil ministry, which has been renamed the Ministry of Energy, Industry and Mineral Resources.
The real reason we have witnessed a retreat in crude pricing has little to do with the condition of the market or the actual demand for product. It is the result of a classic yo-yo short in anticipation of a major advance in the price. In other words, some very large traders in oil futures contracts – the so-called "paper-barrel" speculators of future actual consignments of oil (or "wet barrels") – are manipulating a short-term cut in price after establishing a position that will profit with the price going down. This amounts to a "put" clone resulting in an exaggerated decline in the crude pricing level, usually orchestrated on a five-day pricing spread introduced by a sequenced derivative move on the futures contract itself. The trader profits when the price goes down by exercising the "put" to sell options on the futures contract at a higher strike price than that provided by the market by redeeming the derivative. Of course, when that happens, the market price will increase. The trader then profits again by having derivatives on the increasing price already in place. The price is manipulated just like a yo-yo moving up and down. Now the maneuver is only doable during periods of lower-than-average futures contract volume and a narrow period in which the price is not likely to spike because of outside developments (for example, natural disasters, a rapid escalation in hostilities, blockage of transit, collapse in production, and so on). It becomes less useful when the market indicators themselves are decidedly moving up. The approach succeeds by wider market perceptions, not fact. It ends when the actual pricing dynamics take over. In between, a few traders make some bucks by manipulating the margins. There will be little opportunity for this device to operate again as we move into the summer volatility.
Why do I not consider price? A cognitive bias that can be a psychological disaster for a trader is known as "Anchoring". "Chart Analysis" as difficult as it is, doesn't compare to "Self Analysis". I spend as much time working on myself as I do on the charts.