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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.
"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.
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)
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.
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
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)
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.
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
oh nooooo no more bold please :)
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