Does JPMorgan’s Derivatives Fiasco Portend The Collapse Of Crude Oil And Gasoline Costs
In response to The Wall Street Journal, JPMorgan’s losses on what has been reported as large directional bets on credit derivatives, however never totally disclosed by JPMorgan, might reach $5 billion and counting. Together with credit derivatives and other commodities akin to copper JPMorgan Chase is a behemoth trader in crude oil and petroleum products, both as physical product and its financial derivatives. Since April the value of WTI crude on the commodity exchanges has eroded for a plethora of reasons by some 14 p.c a barrel from near $105/bbl to just over $91/bbl, a large decline briefly order.
Now I do not know JPMorgan’s current oil buying and selling e book, nor their positions being held in bodily crude oil and derivative futures contracts. But previous history reveals that JPMorgan is a serious participant risking a whole lot of hundreds of thousands, if not billions, in oil buying and selling positions. JPMorgan has a historical past not only of large trading in oil futures but in addition taking title to huge volumes of bodily product held in shore storage as well in chartered VLCC’s to take a seat for months mangalore refinery petroleum limited us at a time at anchor at sea (VLCC’s-huge tankers ready to hold over 200,000 tons of cargo, some 3 times the size of the HMS Queen Mary.)
Given previous buying and selling practices, JPMorgan may be holding speculative cargoes of crude oil valued within the a whole bunch of tens of millions of dollars (every ton comprises 7.4 barrels of crude x 200,000 tons bought say at hypothetical degree because the current value of $105/bbl would value such a cargo petroleum equipment company at $155,400,000. This in comparison with a present value (shut of trading Friday, May 18) of $91/barrel or $134,680,000 plus per diem chartering and holding expenses resulting in a mangalore refinery petroleum limited us paper lack of a minimum of $20,720,000 — a major sum but without the current credit score derivatives imbroglio, may nicely have been handled with equanimity by JPMorgan Chase. But that’s the purpose, given the building losses in its different buying and selling operations JPMorgan could not moderately be capable to tolerate additional deterioration in value in its proprietary commodity trading positions and one might enterprise that the strain to liquidate such positions is mounting, especially as prices erode. The question turns into how massive are their crude oil bodily and derivative positions, and under how a lot pressure is JPMorgan now below to liquidate
JPMorgan has been a significant participant in pushing the worth of oil up in their speculative place taking, prices which have performed out in the value of gasoline we’re all paying on the pump. Maybe this is the turnaround moment and JPMorgan’s current travails in buying and selling will result in decrease gas costs. Please remember the testimony given by Rex Tillerson, chairman and CEO of ExxonMobil (if ever a personage should know, he ought to) only a year in the past, earlier than mangalore refinery petroleum limited us a Senate committee, that the then quoted price of $a hundred/barrel included $30-$forty/barrel attributable to hypothesis. JPMorgan was not talked about however in relation to oil hypothesis, JPMorgan is among the many leaders of the pack.
One additional level: JPMorgan, as a supposed financial institution holding company has ready entry to the Federal Reserve cash window and its diminutive curiosity rates, in different phrases, taxpayer money. This, whereas concurrently holding Federal Deposit Insurance Corporation (FDIC) secured deposits for which the government is the backstop of final resort. Thus, taxpayers are helping JPMorgan Chase run up the worth of oil and gasoline at little price to JPMorgan and to their enormous profit. But should all the trades blow up and the financial institution collapses the government is left holding the tab. All of the whereas we pay for it a second time at elevated costs for gasoline on the pump.
Lastly, it is the irony of ironies — this cozy relationship with the Federal Reserve is memorialized by JPMorgan Chase Bank Chairman and CEO Jamie Dimon sitting on the board of the new York Federal Reserve (JPMorgan’s Piggy Bank). It’s a grotesque symbol of how the Wall Avenue banks control our authorities.
Mr. Dimon, sir, out of respect to our waning confidence in government establishments, your resignation from the Fed Board is properly previous due.