Thread by @cjenscook

@Big_Orrin 1/n This is interesting

https://twitter.com/JavierBlas/status/1368581191843057671?s=19

'Oil war' bollocks hid the reality of a Covid demand shock blowing through a Saudi-funded WTI peg. So Saudi pumped like mad & sent a fleet to deliver into the May 2020 WTI delivery window. Why? The reason is USO oil fund

@Big_Orrin 2/n Both @petromatrix & @izakaminska documented strange 'bloat' of USO (in 2009) when Supercontango bizarrely combined with a rising market. They both remarked on a similar bloat in 2015 (I think) & Izzy wrote some great stuff on #DarkInventory @FTAlphaville

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 3/n Now, a $2bn USO pool of physical crude oil which required only 30m bbl at $70/bbl required 80m bbl at $25/bbl. Hence Saudi panic pumping & wave of oil to the Gulf during the May 2020 window. This informs the barking mad April 20 May WTI 2020 expiry

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 4/n CME knew pre April 8 -ve prices were likely. How? Inside knowledge that a substantial chunk of WTI was prepaid #DarkInventory & the economic interest was not where the market thought it was. Then there was the Bank of China 'retail' Treasure Fund May WTI 2020 long position

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 5/n I managed the IPE Gas Oil contract deliverable ARA for six years & neither I nor their brokers would never allow retail customers within 3 weeks of expiry of Europe's greatest game of 'chicken', but Treasure Fund were there with a TAS order to get out at expiry

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 6/n Now I introduced the TAS facility at IPE in 1995 & was well aware close watch was needed. I left in 1996 & in a 2000/1 disciplinary case I advised, I found TAS was being routinely abused by big traders intraday. Locals also 'grabbed a grand' at the close but it was small fry

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 7/n By a quirk of fate it was a loose syndicate of ex IPE locals - Vega Capital - who had bought TAS on 20th April with the aim of 'bashing the close' to make a profit but risking a loss if someone came in on the other side. But they found themselves selling into a vacuum..

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 8/n Outcome was price went to $ -37/bbl & $500m profit made by astonished IPE boyz reflected by a loss by China Treasure fund. But why the vacuum? Strangely, both CME & CFTC have been coy about that, although it wouldn't take the brains of a rocking horse to find out

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 9/n Moreover, all the CME staff kept their jobs for what back in my UK day, was a 'disorderly market' at best (civil liability) & false market at worst (criminal). All the trades should have been busted & senior CME management sacked. But Treasure Fund seem to have sucked it up

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 10/n Why? A 'retail' sprat to catch a wholesale mackerel. China was able to pick up gazillions of barrels at rock bottom prices & the usual insiders who were in the know made out like bandits. Now to the aftermath

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 11/n Since inception USO always traded & rolled Month 1/Month 2 & was routinely milked by locals. Backed by a six month strip of T-Bill collateral (ie Petrodollars). But post April 2020 USO restructured to a 6 month WTI futures strip & pool of $/near $. But here's a coincidence

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 12/n The 14 September 2019 Abqaiq attack spiked oil briefly causing major margin calls and turmoil in the T-Bill markets. But it coincided with the introduction of so-called NotQE where instead of QE dealing with the outside world, the Fed dealt only with Big Four bank reserves.

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 13/n In my view, this completed the process of pegging the dollar to oil through an Enron tripartite prepay arrangement of WTI strip sales, NOTQE liquidity from the Fed (where Enron got it from JPM & Citi) & Saudi petrodollar cash/near cash funding. But then along came Covid...m

@Big_Orrin @petromatrix @izakaminska @FTAlphaville 14/n Just a couple of days ago @gilliantett observed no explanation for the March Treasury meltdown has yet been found. It is clearly the case that oil shocks reverberate & these market tremors have clearly been amplified by oil market financialisation.

@Big_Orrin @petromatrix @izakaminska @FTAlphaville @gilliantett 15/n There's an intersting analogy with the extraordinary destruction of the 2010 Christchurch earthquake caused by underground 'liquefaction'. So where are we now? Looks like the damage has been repaired & market price reinflated to 2020 level by 250k contracts in a 4 month ramp

@Big_Orrin @petromatrix @izakaminska @FTAlphaville @gilliantett 16/n But whereas a year ago the shock seemed accidental, this time round I suspect after the current spike, China ( who have engineered a dominant position) will act to drive the market down to the lower bound & clean up while doing so. Phew. That turned into a thread #OOTT

@Big_Orrin @petromatrix @izakaminska @FTAlphaville @gilliantett @threadreaderapp unroll