Crackerbox Palace: Crude oil up over 5 percent Friday

Crackerbox Palace: Crude oil up over 5 percent Friday

Largely unreported Saudi military action in Yemen puts epic short squeeze on oil bears. Rest of markets digest this week’s gut-churning action.

"We welcome you to Crackerbox Palace. We've been expecting you!" This 1976 George Harrison classic could have been written for this week's markets. (Still from YouTube music video of the song)

WASHINGTON, Aug. 27, 2015 – This week, for some mysterious reason, our ears have been ringing with the strains of that weirdly affable 1976 George Harrison classic tune, “Crackerbox Palace.” Was George referring to an insane asylum in this song? No one’s quite sure. But given this week’s trading action on Wall Street, maybe George was issuing a prophecy about the stock market, circa August 2015.

Among other attempts to explain this week’s and this month’s epic market volatility, at least today the Maven finally understands the underlying reason why at least one major market influence—the price of crude oil—has been soaring over the last three days, just moments after it had been staring into the abyss of oblivion. The Maven has today learned this, via Turkish website

Saudi Arabian ground troops have advanced into northern Yemen, in a bid to push back against Houthi Shia militia and forces loyal to ousted president Ali Abdullah Saleh, military and tribal sources said.

This is Saudi Arabia’s first ground offensive in Yemen since it launched an extensive military campaign in March targeting Houthi positions.

The sources told Anadolu Agency that Saudi Arabian troops advanced into Saada province after Houthi militants recently stormed Saudi positions in the southern Saudi province of Jizan.

“Saudi ground forces seized control of two areas in Saada province and intend to advance toward Houthi positions,” sources said.

The Maven wonders why in the Sam Hill he should need to discover this news on a Turkish website rather than via the Wall Street Journal or CNBC. Granted, the Saudis have been carrying on a bombing campaign against ISIS- and Iran-backed “rebels” in Yemen since at least July. But the new ground offensive apparently began a couple of days ago—coinciding, strangely enough, with the Lazarus-like resurrection of crude oil prices after their very recent near-death experience. Crackerbox Palace?

West Texas Intermediate is spiking a further, massive $1.86 per share as of 11:30 a.m. EDT, currently standing at $44.42 bbl. That’s up a colossal $7 bbl., give or take, from Monday’s low ebb, which saw the price of WTI approach $37 bbl. before bouncing slightly.

UPDATE: WTI at nearly $45 bbl. at noon, up almost 5.5 percent on the day.

These are huge price jumps. They may provide us with another piece of the puzzle as we try to reason why the market as a whole has experienced a partial revival this week after the sickening decline that began Aug. 20 and reached its most violent peak on Monday and Tuesday of the current week.

It’s clear now, if it wasn’t last week, that for the short term at least, HFT ghouls and gleeful short sellers had been feasting on the oil patch by selling and shorting the dickens out of this commodity as well as others. Whatever happened to “peak oil”? (Maybe Goldman was in on this, too. They rarely miss the current fun.)

But, when word of the Saudi military action began to leak to those in the know—activity that could potentially jeopardize a huge source for world oil supplies—a savvy investing counter-insurgency waded in with buy orders, big time, triggering a totally unexpected short squeeze vs. the machines and the bears.

That short squeeze quickly gathered momentum, juicing once-declining oil prices into doing a 180. This torrid reversal we’re currently witnessing is a strong indication as to why oil’s surprise move up has been even more violent than its recent downward cascade. It also makes one wonder if at least some of this “oil surplus” story has had at least the veneer of a hoax, driven by determined short sellers out to make a quick buck at nearly everyone’s expense.

Elsewhere, after their white-hot, high volume, two-day tear to the upside, all markets except the energy sector quite expectedly have cooled off today, with the Dow off a little more than .25 percent and the other averages hovering near flatline. That’s okay, and we can understand stocks and traders wanting a breather after this week’s spectacularly violent roller-coaster activities. Even Wile E. Coyote, our market crash friend, has been walking around carrying an air-sickness bag all week.

The unfortunate reality is that most portfolios are still down on the month if not the year, if only because forced option-based selling and margin selling late last week and again on Monday threw mass quantities of stock out the window without hapless investors’ really having a say in the matter, This allowed HFTs and algos to hunt down option prices before expiration on Friday and then blow everyone else away on Monday.

These 21st century Jolly Roger aficionados reprised the fun on Tuesday, blasting in with a fresh wave of selling with barely a half-hour to go in trading, wiping out this week’s first and failed attempt at a snapback rally.

But now it appears that a few of these fun-loving criminal individuals and firms have been bested at their own game. We were glad to see at least a few of these amoral bastards get their shorts good and squeezed Wednesday and Thursday.

The primary casualty of all this week’s nonsense, aside from the truth, is that once again, small investors who’ve been cautiously tiptoeing back into the market over the last couple of years have apparently been bailing out once again, most badly burned and many never to return again. Confidence in these markets by once-important retail investors is fast-becoming extinct.

Until the government agencies responsible for regulating this industry actually step back in and do their jobs, the once vital American investment environment will continue its one-way descent into Casinoville hell, making things increasingly dangerous for individuals managing their own accounts and/or IRAs and 401(k)s, which means the bulk of Americans employed full time.

With Social Security in continuing jeopardy due to Washington’s pathological fecklessness, avarice and cowardice, with crooks clearly running the show on Wall Street, and with do-nothing SEC and government regulators intent on assuring themselves of cushy private sector jobs in the future from the financial companies they supposedly regulate now, investing in this market makes about as much sense as donning a tux and heading for skid row on Friday evening to seek out the neighborhood’s local Michelin five-star restaurant. You’ll be lucky if you escape with your life, let alone your wallet.

As for us, we’ll be back Monday for another episode of Crackerbox Palace. Your guess is as good as ours as to what the jolly inmates will do next.

In the meantime, let’s let George and his friends sing us into the weekend.

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Terry Ponick
Biographical Note: Dateline Award-winning music and theater critic for The Connection Newspapers and the Reston-Fairfax Times, Terry was the music critic for the Washington Times print edition (1994-2010) and online Communities (2010-2014). Since 2014, he has been the Business and Entertainment Editor for Communities Digital News (CDN). A former stockbroker and a writer and editor with many interests, he served as editor under contract from the White House Office of Science and Technology Policy (OSTP) and continues to write on science and business topics. He is a graduate of Georgetown University (BA, MA) and the University of South Carolina where he was awarded a Ph.D. in English and American Literature and co-founded one of the earliest Writing Labs in the country. Twitter: @terryp17