In this screen capture, I am showing the data window (at the right side) for a 3 minute candle for the DTO ETN. DTO is the new Powershares/Deutsche Bank Double Short of crude oil. This fund is growing very rapidly, and will soon begin to rival the famous USO (long crude oil) ETF that has been around for years.
Needless to say, the price of crude oil has dropped significantly in the past couple of days. However, this candle makes the point very powerfully how difficult it is even for large funds to affect the crude oil market.
Note in this data window the UP volume purchased within this 3 minute period. Since this is an inverse fund, the up volume represents selling (shorting) of crude oil. The previous ten candles had combined total volume of less than 100,000 shares (for ETNs, I believe they use the term "notes" rather than shares). This one 3-minute candle had UP volume -- selling crude oil -- of 506,700 shares! More than half a million shares selling crude oil short within 3 minutes! That is unbelievable volume! And yet, with about a 50:1 ratio of buying to selling on that candle, the price moved down (so crude moved higher) within 5 minutes! Even the huge USO fund (the largest -- so far -- of the crude oil ETFs) had volume at that same moment in time of only about 300,000 shares, and 200,000 of those shares were also selling crude oil, adding even greater volume to the crude selling.And what was the result of all that buying (shorting of crude oil) in this ETN? The price of the ETN moved down. In other words, all that shorting of crude oil and the price of crude oil went HIGHER, because the value of the ETN notes immediately went DOWN. The two largest crude oil funds sold more than 700,000 shares/notes of crude oil in 3 minutes, and the price of crude oil rose instead!
One of the reasons for this is that despite heavy buying or selling by one very large fund, the effect of that buying or selling is very short-term in its consequences, lasting just a few moments. No matter what the size of a fund's order, it still only counts for just ONE order to buy or sell crude oil. As soon as that fund stops buying or selling, the effect dissipates almost immediately.
One of the reasons for this is that despite heavy buying or selling by one very large fund, the effect of that buying or selling is very short-term in its consequences, lasting just a few moments. No matter what the size of a fund's order, it still only counts for just ONE order to buy or sell crude oil. As soon as that fund stops buying or selling, the effect dissipates almost immediately.
The second screen capture (above) shows the volume for the small green candle immediately following the small (red) one I discussed above with more than 500,000 volume (this original candle still is shown with the green arrow in this screen capture). This new candle (the one after the green arrow) shows a more normal volume of only 2800 shares (both up and down combined). It also showed prices move marginally higher (crude slightly lower). These 2800 shares had about the same impact as the 500,000 from the previous candle!
The third screen capture (above) shows the volume for the first long red candle that sends prices lower. This is the 3rd candle following the original one where the green arrow appears. It shows volume of 4200 notes, including 2700 being sold. Remember that since this is an inverse ETN, when the price of the ETN goes down, the price of oil goes up! Thus, less than 10 minutes after someone shorted oil to the tune of 500,000 shares in this large ETN, prices moved substantially against the position just purchased, and the price of crude oil moved higher! If you shorted oil, that would be a painful lesson.Thus, even a very large fund buying crude oil in massive volumes can be easily offset by just a few small traders selling smaller volumes at the same time. In the example above, the effect of the 500,000 notes that were selling crude oil were quickly nullified by the few thousand (2700 in this last candle) that were buying crude oil. This must be very frustrating for large funds to know that small investors and traders can have almost as much impact on the market as they can, offsetting all that buying and selling of the big funds with much smaller trades that have just as much impact.
The point of all this is simply to underscore how incredibly difficult it is for one person, a group -- or even a very large fund or investment bank -- to drive the price of crude oil higher. Speculators simply don't have the kind of power to drive prices that is sometimes attributed to them.
Congress should wake up and learn the lesson the market is trying to send them. It's is a very silly argument (suggesting that speculators drive prices higher) once the facts are known! Congress needs to acknowledge that it is -- at least in part -- bad policy that is affecting the supply and demand for crude oil worldwide, and the blame needs to begin where that policy starts -- in Congress' own house -- right at home. Until that changes, the fundamental reasons for high fuel prices will stay the same, and prices will likely remain elevated.
Congress should wake up and learn the lesson the market is trying to send them. It's is a very silly argument (suggesting that speculators drive prices higher) once the facts are known! Congress needs to acknowledge that it is -- at least in part -- bad policy that is affecting the supply and demand for crude oil worldwide, and the blame needs to begin where that policy starts -- in Congress' own house -- right at home. Until that changes, the fundamental reasons for high fuel prices will stay the same, and prices will likely remain elevated.
