The Oil Drum | DrumBeat: January 11, 2007

151 comments on DrumBeat: January 11, 2007

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John McFadden on January 11, 2007 - 10:22am

Well, that was quick. Today US forces raided the Iranian consulate in Arbil, in the Kurdish region. Six staff members were arrested and computers and documents were seized.

For those that don't mind visiting the Al Jazeera website.

If this keeps up we may see an increase in the price of oil sooner rather than later.

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jturpin on January 11, 2007 - 10:36am

Here's a Bloomberg link to the same story, it's good to have multiple sources on stories like these...

http://www.bloomberg.com/apps/news?pid=20601103&sid=a90DLQrWr.YY&refer=us

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Dragonfly41 on January 11, 2007 - 10:44am

Gee, in light of this raid news, I wonder if adding 92,000 troops is related to this strategy of engaging the Iranians?

Gates looks to add 92,000 troops to military:
Defense secretary sets 5-year goal, unclear how long Iraq surge will last

http://www.msnbc.msn.com/id/16576547/

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HeIsSoFly on January 11, 2007 - 11:01am

"Gates proposed adding 67,000 Army soldiers and 25,000 Marines, citing an annual increase of 7,000 for the Army and 5,000 for the Marines until the Marines reach 202,000 and the Army is at 547,000 troops."

If it takes 5-10 years to add a few troops, we'd better hope the Iranians are patient people.

"Not now, we're not ready yet"

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MUDLOGGER on January 11, 2007 - 9:30pm

One word:

Draft

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Prof. Goose on January 11, 2007 - 10:12pm

two words:

Draft...soon.

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step back on January 11, 2007 - 10:33pm

5 words:

soon ... draft Jenna ... draft Barbara

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James Bond on January 12, 2007 - 4:50am

Bill Murray in "Stripes". 4 words. Hah! I beat'ya.

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Dragonfly41 on January 12, 2007 - 12:08am

Yes, it is getting a bit drafty.

And then there is this ====>

Did the President Declare "Secret War" Against Syria and Iran?

http://www.thewashingtonnote.com/archives/001869.php

Washington intelligence, military and foreign policy circles are abuzz today with speculation that the President, yesterday or in recent days, sent a secret Executive Order to the Secretary of Defense and to the Director of the CIA to launch military operations against Syria and Iran.

The President may have started a new secret, informal war against Syria and Iran without the consent of Congress or any broad discussion with the country.

The bare outlines of that order may have appeared in President Bush's Address to the Nation last night outlining his new course on Iraq:

Succeeding in Iraq also requires defending its territorial integrity and stabilizing the region in the face of extremist challenges. This begins with addressing Iran and Syria. These two regimes are allowing terrorists and insurgents to use their territory to move in and out of Iraq. Iran is providing material support for attacks on American troops. We will disrupt the attacks on our forces. We'll interrupt the flow of support from Iran and Syria. And we will seek out and destroy the networks providing advanced weaponry and training to our enemies in Iraq.
We're also taking other steps to bolster the security of Iraq and protect American interests in the Middle East. I recently ordered the deployment of an additional carrier strike group to the region. We will expand intelligence-sharing and deploy Patriot air defense systems to reassure our friends and allies. We will work with the governments of Turkey and Iraq to help them resolve problems along their border. And we will work with others to prevent Iran from gaining nuclear weapons and dominating the region.

Adding fuel to the speculation is that U.S. forces today raided an Iranian Consulate in Arbil, Iraq and detained five Iranian staff members. Given that Iran showed little deference to the political sanctity of the US Embassy in Tehran 29 years ago, it would be ironic for Iran to hyperventilate much about the raid.

But what is disconcerting is that some are speculating that Bush has decided to heat up military engagement with Iran and Syria -- taking possible action within their borders, not just within Iraq.

Some are suggesting that the Consulate raid may have been designed to try and prompt a military response from Iran -- to generate a casus belli for further American action.

If this is the case, the debate about adding four brigades to Iraq is pathetic. The situation will get even hotter than it now is, worsening the American position and exposing the fact that to fight Iran both within the borders of Iraq and into Iranian territory, there are not enough troops in the theatre.

Bush may really have pushed the escalation pedal more than any of us realize.

Damn...I just love a good conspiracy theory!!!

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Dragonfly41 on January 11, 2007 - 10:49am

My conjecture.

Oil is no longer considered a commodity by our government, but a "National Security Interest". Therefore, it no longer is part of the open and free market place, but whatever rules the Fed and Central Banks care to impose upon it to make sure it does not collapse the major economic players of the world.

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eric blair on January 11, 2007 - 11:19am

"National Security Interest"

See The Carter Doctrine

http://en.wikipedia.org/wiki/Carter_Doctrine

23 January 1980, which stated that the United States would use military force if necessary to defend its national interests in the Persian Gulf region.

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Francois on January 11, 2007 - 11:41am

I keep charging at this windmill...

There are smart people out there that mathematically analyze the markets for evidence of manipulation. One of them is Michael Bolser. He busies himself with "The examination of government interaction with strategic commodities and financial indexes"

For example, Michael shows how the front month Brent contract, when you look at the 100 day moving average adjusted for currency variations, has been moving in straight, linear segments. THe current segment started on Nov 22nd, and has kept a straight line (regression index > 99.6) ever since.

In other words, it is as if some algorithm or emergent market property somewhere ensures that the closing price of the Brent front contract and the FEDs daily dollar currency index are correlated such that the 100 day moving average changes by a consistent amount every day.

It is easy to dismiss this as "that is what 100 day moving averages do". And I am sure you can pick any commodity and find straight sections like this in it's 100 day moving average. But if you consider how long this has been going on (years), and how it holds up even as oil has dropped from the high $60s to low $50s, it becomes very puzzling.

You can find his site here and a summary of his terms here (read this first)

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Nate Hagens on January 11, 2007 - 12:24pm

All markets trend - the 100 day moving average makes it look like the trends are smooth. Oil markets trend more than most. People underestimate 3,4 and 5 standard deviation events in markets which is why using trend following beats fundamental analysis in commodities (for example, how many people are bullish on oil right now and might ultimately be correct but are getting margin calls due to price plunge?)

In any case, if the correlation is 99.6%, either its tradable, in which case it will disappear soon after the publishing of that report, or its not tradable, which means its just a meaningless stat.

If the 100 day moving average changes 'by a consistent amount every day', all that tells you is the daily magnitude of change is about the same as the average daily change over past 100 days. It therefore is more of a predictor of stable volatility than price direction.

But (in my own lengthy experience of designing trading algorthims), stable volatility periods beget super volatility periods which beget stable volatility periods (after institutions get whipsawed and stay away). We are due for a some volatility in oil prices as we have nicely gradually declined from 80 to 55 with barey a hiccup. The calm before the storm. Dec 2007 $100 call options are 35 cents. and Dec 2007 $35 puts are 35 cents. I bet 2 months from now they will collectively be worth more than 70cents, even with time decay.

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Francois on January 11, 2007 - 1:18pm

I think this is not the 100 day MA your mother taught you, and that we are all familiar with. Take a look at the links I provided if you have a moment

Francois

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Nate Hagens on January 11, 2007 - 1:57pm

You seem to be asking 2 questions:
1)Is there government intervention in the markets?
and more importantly
2)can it be predicted based on some formula (presumably that you or someone can profit from it)

1)Unequivocally the governments use coordinated intervention. When I was at Lehman Brothers there was a red light labeled 'fed' on the currency desk that would rarely flash, but when it did, the government would be buying or selling huge amounts of dollars in the forex market. I am less certain of whether this exists in oil or SP500 markets, but see no reason why it wouldnt.

2)Looking backward at data anyone can datamine and find some 'pattern'. For it to be profitable it has to work 'out of sample'. Most people are tricked into thinking some historical pattern has causality when it was in fact random (there is an evolutionary origin for this) Talebs book "Fooled by Randomness" is a very readable explanation of this (and thanks to Kurt Cobb for gifting it to me).

Im not saying youre wrong - just saying what good is the information? I highly highly doubt its tradable, and if youre ultimate question is 'are the governments intervening in the markets' the answer is 'probably, and there is no way for the average person to game what, how much and when'

but send me the data - Ill take a look. (when Im done chopping wood)

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Francois on January 11, 2007 - 7:22pm

Agreed on the intervention thing. Take that as a given (like you say).

The question is more about trying to see behind it - i.e. is it being managed to a preset plan, or is it an ad-hoc thing that gets decided in the morning when they wake up.

This Brent oil MA could possibly be evidence of it being managed to a plan.

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Hellasious on January 11, 2007 - 3:11pm

OK...what this Bolser fellow seems to be saying is that manipulation is occurring in such a way as to hide the fact that it is happening. That is, it happens at regular intervals to create the appearance of volatility whilst maintaining a linear 100 day MA trend. For example, if there was a big spike up in price 50 days ago, there will be a big spike down some 50 days later, etc.

Am I understanding this correctly Francois?

BTW, the whole "divide/multiply by the dollar index" business etc, etc is essentially fluff because it arbitrages out. Oil futures are fungible and priced identically in all freely tradeable currencies; if minute discrepancies occur there are thousands of professional arbitrageurs that pounce on them to make a few cents of "free" money. It looks as if this Mr. Bolser is including this to create unnecessary complexity for fee-paying customers.

Regards

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Hellasious on January 11, 2007 - 3:14pm

oh nooooo no more bold please :)

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Francois on January 11, 2007 - 5:37pm

I could not find evidence of such big spike anomalies - but they may be there in the data.

As far as the multiply/divide thing - I have a different interpretation of it. Let's take a trading day where the dollar falls against the Euro/Yen, and oil prices (in dollars) go up. Someone that has to trade his euros for dollars to buy oil, see little or no impact from the higher dollar price. Someone buying in dollars sees oil more expensive. So - did the real world value of oil go up or down on that day? To answer that question, you will need to know the size of the currency move, and the relative volume of each currency that was used to buy the oil. You can then calculate a value of oil that is currency neutral. Just to say it went up (in dollars) when the dollar actually was down against other currencies, does not reflect what non-dollar buyers see. You want to get to where you can say "the average oil buyer" saw a higher/lower oil price today.

So by multiplying the dollar price of oil with the trade-weighted currency index (MCDI) published by the FED, we arrive at a number for oil that moves day to day (very) roughly normalised to currency fluctuations.

I have looked at the moving averages both with and without the MCDI factor. Adding the MCDI improves the regression index, and it makes sense to me that it does.

Francois

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westexas on January 11, 2007 - 11:39am

CONNECTING THE DOTS?

From the news story up the thread:

The U.S. economy will continue to rely on crude oil imports -- which currently account for more than half the nation's oil consumption -- panelists said at a hearing before the Senate Energy Committee on global oil supplies.

From my comments yesterday:

Russia has admitted to a year over year decline in exports, but what is particularly interesting is the decline in exports since June, 2006. According to a chart in the following article, oil exports to countries outside the CIS have steadily fallen through December, by a total of 600,000 bpd: http://news.goldseek.com/GoldSeek/1168362120.php

The Big Three--Saudi Arabia; Russia and Norway--accounted for half of the exports by the top 10 net oil exporters in 2005.

According to the EIA, the Big Three showed a combined increase in Total Liquids consumption of about 600,000 bpd from 2004 to 2005.

If we plug in a similar increase in consumption for 2006, the 1.1 mbpd decline in Saudi crude production, the probable 400,000 bpd drop in Norwegian production, and a 300,000 bpd (?) decline in Russian exports to non-CIS countries, it looks like the decline in net exports by the Big Three, as of 2/07, from the 2005 average, could easily be on the order of 2.5 mbpd.

From the EIA's This Week in Petroleum (1/10/07):

Given that crude oil inventories were above the average range for this time of year, there was plenty of crude oil available to draw upon, making the large crude oil draw this week not as alarming as it may first appear.

Bremerton-based carrier Stennis to deploy in Persian Gulf:

By The Associated Press
WASHINGTON – The aircraft carrier USS John C. Stennis is scheduled to leave the United States this month for the Persian Gulf region in a Naval buildup aimed partly as a warning to Iran.

Doesn’t it seem like more than a coincidence that just as we see increasing evidence of declining oil exports that Bush implements a significant across the board increase in military activity in the Persian Gulf area?

Also, if your doctor called you and said that some lab results are not “as alarming” as they initially appear, would you be unconcerned?

I thought the EIA’s description of declining US crude oil imports as being not “as alarming” as it initially appears was interesting. In other words, the EIA believes that the crude oil import numbers are alarming, but not “as alarming” as they initially appear.

I noted yesterday that, based on the HL method, Saudi Arabia is about 60% depleted, Norway is about 70% depleted and Russia is about 90% depleted (Alan corrected my mistake of using the 85% number).

IMO, the 90% Russian number is more or less correct, at least for mature producing basins. Through 2006, the US Lower 48 and Russia have basically produced 100% of what the HL model predicted they would produce, after crossing the 50% of Qt marks, using only production data through the 50% of Qt mark to generate the predicted post 50% of Qt cumulative production. Based on the HL method, both regions are about 90% depleted.

The Lower 48 is producing about 4.3 mbpd (C+C), while Russia is producing about 9.2 mbpd (C+C). The difference is that Russia had to make up for the huge drop in production after the collapse of the Soviet Union, which implies that very sharp production declines are ahead for Russia.

And let’s not forget the fact that the Cantarell Field, the second largest producing field in the world, is crashing. And let’s not forget the fact that Pemex has tried to hide their true assessment of the predicted decline.

So, if the world is on the edge of a potentially massive decline in net export capacity, and if your country is addicted about a 5% per year increase in Total Petroleum Imports, and if you are a president who believes that the American way of life is "non-negotiable," what do you do with your military?

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b3NDZ3La on January 11, 2007 - 12:21pm

this war--

I don't think we're getting it.

I suggested that what we're seeing is not "failure" but anticipated outcomes.

This is not to suggest it is not a catastrophe, a disaster, or anything I personally desire to see.

But "failure/success" depends on what this administration's goals were in the first place.

We KNOW he lies:

WMD, Saddam/alQaeada, aluminum tubes/yellowcake, "bringing democracy to the MiddleEast."

We know the MSM is a cracked and fogged-up lens through which to view things.

IF the original and unarticulated goal was: "plant fat ass on oilfields, build military bases; damn all else," then we have exactly what Chimpy said we had: "catastropic success."

IF peak oil is real

IF it is imminent

IF Iraq's oil is the only (short-term) source for upcoming shortages to the US (see "tar sands," "Cantarell," "East Texas"/"Prudhoe Bay"), then we have two choices:

Perpetual war and a future oil supply

Or chronic shortages and chaos.

It's pain all the way around.

This administration has just made our choices for us.

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westexas on January 11, 2007 - 12:34pm

Re: War; I agree

IMO, if current events don't scare the crap out of you, you are not paying close enough attention.

NPR had a caller a little while ago who claimed that a guy, with Special Services training, in her husband's office was called up for active duty, after not being on active duty for 20 years. The implication was that if you receive Special Force training, you are indefinitely in the Individual Ready Reserves (inactive reserves). Anyone have any knowledge in this area? In any case, the Pentagon has been calling up people in the IRR off and on for quite a while.

BTW, George Ure, over at Urban Survival, noted that Bush said "at least" 20,000 extra troops. I wonder if we are the start of a full scale military mobilization, with the long term plan of seizing permanent control of the key oil fields?

George Bush gave a background briefing to some key media people yesterday. According to Tim Russert, Bush said that Iran would be the key focus in 2008, and he said that candidates for the presidency must have a credible plan to keep Iran from going nuclear.

As I said, if this is not scaring the crap out of you, you aren't paying close enough attention.

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Nate Hagens on January 11, 2007 - 1:13pm

Another explanation is that if the crap was already scared out of you for a different reason, said crap cant be scared out of you for this reason.

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Dragonfly41 on January 11, 2007 - 2:33pm

Yep, WT. I think this build up of military in Iraq, raid on the Iranian embassy, more warships in the region and steady drop in crude is preparation for Bush's next adventure in Iran.

But, I've been wrong before, and as Hothgor likes to point out, I'm all doom and gloom (I prefer realist), so what do I know.

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airdale on January 11, 2007 - 6:14pm

Material for a new Ludlum spy thriller.

Hey I can imagine an exchange in the Oral Orifice as follows:
*******************************************************************
W: What? TOD? What kind of shit is that? They knew about all this?

Rice: Our NSA computers figured that they knew all along. This West Texas guy has been tracking this and got there before us. We might want to scan your office Sir for bugs.

W: Rice I want your ass on that website night and day. Like white on Rice...ha ha ha. Get on it! Those loonies are blowing my plans out the window. Where do they get this SHIT?
*******************************************************************

"Let loose the dogs of war."

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westexas on January 11, 2007 - 6:38pm

If "westexas" suddenly starts debunking Peak Oil, you will know that I am sharing a cell with Jose Padilla.

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elwoodelmore on January 11, 2007 - 9:59pm

maybe hothgor would be your "roomate"

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Rethin on January 11, 2007 - 11:29pm

Sorry but the 8th amendment prohibits cruel and unusual punishments.

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westexas on January 11, 2007 - 12:11pm

From Drudge:
http://www.breitbart.com/news/2007/01/11/070111142703.6qdsdjv9.html
Rice warns Iran against aggression after US arrests Iranian consular staff
Jan 11 9:27 AM US/Eastern

US Secretary of State Condoleezza Rice warned Iran that the United States won't "stand idly by" if Tehran tries to disrupt Washington's renewed effort to stabilize Iraq.

Speaking hours after US troops raided Iran's consulate in the northern Iraqi city of Arbil and arrested five employees, Rice said Washington was determined to crack down on Iran's "regional aggression"

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oilmanbob on January 11, 2007 - 6:14pm

WT, this is definitely scary stuff. We can't whup up on 20 million Iraquis so we're attacking 70 million Iranians?

If Bush has a tiny bit of brain then this escalation is just posturing. He'll never get it through congress, so he can blame the Democrats for losing Iraq because he was ready with a plan to win. Its like Nixon and Kissinger shifted the blame for losing Viet Nam to the Democrats.

Buts what's truly scary is the drunk SOB may not be bluffing-he's ready for the final battle on the plain of Armageddon. He may not be a successful president, but none of us have to live through it to tell the tale. History is written by the victors, not the dead civilians.

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Dragonfly41 on January 11, 2007 - 6:27pm

Well...really...all he is looking for is a valid cover story for PO.

And there you have it.

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westexas on January 11, 2007 - 6:43pm

This whole situation does have a certain "Dr. Strangelove" feel to it. The Great Question: Is Bush mistaken or crazy?

Another interesting article:

http://in.today.reuters.com/News/newsArticle.aspx?type=businessNews&stor...

Gulf Arabs reviewing currency pegs to dollar
By Will Rasmussen

ABU DHABI (Reuters) - Gulf Arab oil producers are reviewing currency pegs to the falling dollar and could decide as early as March whether to keep or change their exchange rate regime, the United Arab Emirates central bank said on Thursday.

Governors of the six Gulf central banks will meet in March in Saudi Arabia and may agree to switch to another currency or currency basket, Governor Sultan Nasser al-Suweidi said. They may decide leave the pegs as they are and any changes would have to be approved by Gulf Arab rulers, he said.

"We might come up with a decision that says we are OK and stick to the same (regime), or we could come to the conclusion that we need to change," Suweidi told Reuters in an interview.

It was the first acknowledgement that the Gulf might not stand by a currency regime designed to prepare for monetary union in 2010, although markets began speculating about a revaluation last year as the dollar fell around 10 percent against the euro.

However, achieving consensus will not be easy in a region that is squabbling over how and when to adopt a single currency. Oman dismissed any suggestion of a Gulf-wide revaluation.

"Oman has no intention of changing its peg. No intention of revaluing its currency," Central Bank Executive President Hamood Sangour al-Zadjali told Reuters by telephone from Muscat.

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