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Tuesday, May 10, 2011

May 10, 2011, Bob Brinker, Oil, Commodities and Dan Dicker Interview

May 10, 2011....Bob Brinker's third-hour guest was Dan Dicker. Dicker was an oil trader for many years at the New York Mercantile Exchange. He traded in natural gas, crude oil and heating oil futures. His latest book is "Oils Endless Bid."

Brinker was like a dog with a bone and wouldn't give up his "president blaming the speculators and traders" rants. He seemed to want Dan to see his point and raise him one, but it didn't happen. While Dan never outright disagreed with Brinker, he made it abundantly clear that he indeed thought (at least) traders did affect the markets.

Bob Brinker started the interview saying he wanted to begin with the 800 pound parakeet over in the corner. Brinker raised his voice to an ever-higher pitch as he said: ".....the pathetic attempt by the president of the United States, just two weeks, to blame oil prices on those speculators, those traders, it's their fault. When I hear this kind of political poppy, it drives me crazy. You're the trader, tell me your reaction?"

Dan said: "There's two pieces to that puzzle. Number one, there was an effort by the president to get the Attorney General, Eric Holder, involved in looking at the look at fraud inside the energy trading and what he's going to find is that there is no fraud to be found. But what there is to be found is an enormous amount of financial influence in the oil markets through hedge funds, pension plans, indexes, people who are trading their own accounts online, that has in a lot of ways swamped out the amount of money that's being traded by those who actually have connection to oil -- the oil companies, the oil users, the drug companies, the aluminum companies, the food processing companies, obviously the refining companies and so forth. And all of these real users of energy that should be permitted to set the prices of oil have been over-run by you and me in a lot of cases. By anybody who is a public servant. Anybody that has a little bit of money and is trying to invest. Not only in stocks and bond, but also in hard assets....."

Brinker replied that anybody who is trying to gouge the public should be locked up but "....the real culprits here are the politicians in Washington who have failed miserably for decades to establish a viable energy policy in the United States that would make us less or non-dependent on global oil prices."

Dan commented
that we lack an energy policy that makes sense. Witness the amount of natural gas in this country that could power this country for a couple of centuries and stop an outflow of $250 billion to countries that don't like us and would like to kill us. But there still is quite a lot of Wall Street influence on the price people pay for gasoline at the pumps. There is an enormous surplus of supply....the demand structure in oil that is lower than it's been in seven years. A supply structure that's higher than it's been in sixteen years. And yet we have prices that have raise upward.

Brinker sarcastically said:
"So Dan, should we be looking for the president perhaps to call a news conference tomorrow and to blame those speculators and traders for this big drop in crude oil.......That would seem to be logical."

Dan said: "I have a problem with the term itself because it implies a manipulation of the market. That somebody is going in there and in a nefarious way is trying to hike prices in order to make money or...."

Brinker said:
"That's the presidents term, that's his term."

Dan said: "It just has this horrible connotation........ I'm a speculator, but I don't consider what I do nefarious. What I do is I try to find places I can make some money in markets, in dis....."

Brinker said:
"There's nothing wrong with what you do....."

Dan said: "And there's nothing wrong with somebody decided to take 4 or 5% of their portfolio and invest it a hard commodity index.....trying to capture what they think is going to be a rising price of oil, of cotton, of corn, of wheat, of precious metals. The problem with that is that as these people want to capture this kind of alternative asset class of all of these commodities, they keep on buying these commodities, and they buy paper pieces of this commodities as opposed to real pieces.

So instead of buying real oil barrels, they go into the futures market, they buy paper barrels and it does hype prices. And every time you get something that geo-politically happens to drive more money into hyping prices, they get hyped even more. So you get this up and down swing in prices which we saw in '08 and '09, that we're seeing again now in '10 and '11. That go up and then come way down.....And it may not be even important whether the price is high or the price is low, it would help everybody, we could have more jobs....if we knew that what we had in an oil price was a lot more stable than what it's been in the four years."

Brinker said
: "I think it's important to be honest....And I think the president is going to go out 10 to 12 days ago and blast, BLAST the speculators and traders for oil prices when they go up to $115, I think he has to come right back tomorrow and he has to say, 'it's the TRADERS fault, it's the SPECULATORS fault that oil came down so quickly to $97.....They are the culprits, that's why it's least that would be consistent. Otherwise, it's just political gamesmanship to only criticize people like you when prices go up....You're the bad guy when they go up, but when they come back down, silence. It's just not right."

Brinker asked: "Eighty-five plus barrels a day consumed around the world of crude oil....This is a really widely used, highly liquid, highly tradeable commodity. I just don't believe it's manipulated. I think it's supply-demand that dictates the price. You know value outs in the end....I find it inconceivable that a bunch of speculators sitting in a corner could dictate the price of 85 million barrels a day. It makes no sense."

Dan responded:
"Now I don't believe you're wrong on any of these things, but what there is, and this measurable, there's been a growth in the amount of paper barrels of oil being bought that's gone from zero to 350 billion dollars of paper barrels of oil that's been bought in the last 5 years. Now that has to go somewhere and it has to affect the price somewhere. And what it's done is over-run what been a very, very tiny, very delicate futures market, which was never created for people to come in and invest in it as if it were a stock, as if it were a bond, but that is how they are investing in it now.

The thing that happens in the commodities market, and you have to remember it's not like a stock. That if you go and buy a stock, you don't have to have the other end of a trade. But if you go in for an oil barrel, you have to find someone to sell it. The thing that commodity traders always do, if they go in for a buy, they are always looking for an exit. And everything they sell, they are looking to buy back. And the people that have been coming in in the last five years are buyers that never want to sell. They want to own it as if it was a stock, as if it was Johnson & Johnson or Chevron.......And when you do that, you get these higher and much more volatile moves in a commodity that we all must depend on for getting back and forth to work, heating our homes......."

Brinker said:
"That's the problem, we haven't done anything in Washington to get that dependence down for 30 plus years....."

Dan said:
"On that, I can agree with you 100%. And it's been a national disgrace since the days of Nixon......."

Brinker asked Dan if he was still an active trader. Dan replied: "No, the floor is not really a viable place. Part of the book shows how it became electronicized, in fact became almost universal. Everybody sort of has the same equivalent access to the oil markets, so I had to go electronic with the rest of the world and I don't go down to the floor anymore."

To be continued tomorrow....

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