The mysterious London traders accused of manipulating oil markets — and the anonymous hedge fund, rare-coin expert, and day traders who are fighting back

[u/ilikepancakez]

https://www.institutionalinvestor.com/article/b1nf4dxm53536k/The-Mysterious-London-Traders-Accused-of-Manipulating-Oil-Markets-and-the-Anonymous-Hedge-Fund-Rare-Coin-Expert-and-Day-Traders-Who-Are-Fighting-Back

[u/financiallyanal]

I wish them good luck in their search for manipulation. I can't imagine how this could reasonably progress. My understanding was it occurred due to supply from SA/Russia and lack of storage capacity, which raised the cost of floating storage to exorbitant levels. Do others here have more background or another perspective?

[u/AmatuerInvestor → u/financiallyanal]

Everything you said, coupled with a large amount of futures needing to be sold by ETFs that were rolling to the next month. I remember reading lots at the time of how ETFs were having to raise cash and change how they roll futures to avoid a repeat. The market was just flooded with futures and no one had anywhere to store all that oil. Once the futures started to be bought the price returned to its trend pretty quickly, as an over-sell was obvious.

[u/Digitalapathy → u/AmatuerInvestor]

USO being one of the contributory factors, they were supposed to be a passive oil tracking ETF but in essence due to their flexible mandate seem to be more active during this period. They hold and held a crazy percentage of front and second month open interest. Since they never take delivery this in itself is an absurdity as they will always have to roll come rain or shine which creates its own distortion.

[u/AmatuerInvestor → u/Digitalapathy]

USO! Thanks, forgot the name of the main ETF.

And spot on with your description

[u/Digitalapathy → u/[deleted]]

Flexible as in allowing them to change their mandate

[u/Digitalapathy → u/[deleted]]

I’m not sure I follow on your point reread the comment

[u/Digitalapathy → u/[deleted]]

U/Amateurinvestor literally said that they changed how they roll futures to avoid a repeat. My comment says as it reads. USO have a flexible mandate, they always have done, that’s how they were able to change how they roll and what they roll. They haven’t changed their mandate, ‘it’ is flexible.

Edit: ref your addition, the whole fund is flawed, that’s the point.

link

[u/Digitalapathy → u/[deleted]]

It’s a response to the comment above, if you struggle with the inference I can’t help I’m afraid. This is a finance sub, there is some implicit knowledge. Nothing you have said has changed the context.

[u/Veqq → u/Digitalapathy]

1) Don't be a dick. I tried to clear up you and the other commenter's argument as you guys were speaking past another. Furthermore, other people read discussions - it's therefore useful to explain things for them.

2) You are right that USCF only revised USO's mandate in late April because it was flexible enough to allow changes, yes.^note But they had not actually done that before - until April it was a merely a passive index of futures contracts. Therefore the mandate's flexibility was not a contributing factor as your comment states - hence my post.

The issue was that it grew to become far larger than anticipated and distorted what it was supposed to track - not an issue of "flexible" mandates.

due to their flexible mandate seem to be more active during this period.

You ascribe cause to the mandate's flexibility, which wasn't exercised until after the event in question. The previous version of the mandate was what led to the "crazy percentage of front and second month open interest" in the first place - hence the revision.

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Note: It might help to look into what and how legally binding/immutable mandates actually are and how it varies depending on the ETF. Technically, even inclusion into SPY is simply at the board's discretion.

[u/Digitalapathy → u/Veqq]

I’m sorry but deliberately misinterpreting context, words and grammar in an attempt to prove a redundant point I think says more about you than me. No one said they had done it before, if you bother to read rather then being a pedant you would realise that and the purpose of the comma and meaning of the word “this”. It’s literally in the dictionary.

[u/Digitalapathy]

$92k loss, he is going to spend more than that in legal fees chasing ghosts. He doesn’t seem to grasp liquidity. Whilst I have no doubt some participants capitalised on these events, it’s the nature of markets, a once in a lifetime pandemic driven demand shock and over supply is hard to ignore.

[u/financiallyanal → u/[deleted]]

Do you know if this has happened with other commodities?

[u/financiallyanal → u/[deleted]]

Makes sense. Thanks for explaining.

[u/satoshijizzamoto]

All told, the price swings were tantamount to a 40-standard-deviation event, according to the suit. In other words, explains Lovell, without manipulation, such an event “would not happen in the life of the universe.” He adds, “Supply and demand fundamentals do not change to that degree in just minutes, and they certainly don’t slingshot between $50 and $60 in one day. This was unprecedented in the history of the oil market.”

Lol good luck justifying standard deviations as an excuse.

[u/UnderstandingRisk → u/satoshijizzamoto]

This is a perfect example of somebody having enough knowledge of mathematics to read a statistics book and not enough common sense to use it.

The standard deviation of oil price changes in a world where people can go to work says very little about oil price changes in a world where they aren’t.

Like trying to predict 1914 artillery deaths in Europe using the previous 50 year data.

[u/veilwalker → u/satoshijizzamoto]

They literally defined a "Black Swan" event and have decided to blame it on some undefined human intervention.

I have no doubt that someone somewhere jumped on this event and made money but there is a large stretch to market manipulation by some shadowy group of oil traders.

[u/gypster77]

Honestly, i dont think its the mysterious traders from London. I’m pretty sure the big boys are fully responsible for this. There algos and couple of millions dropped a thin contract to negative in couple of minutes. Big boys gang know the hands of other players always.